A new study by PricewaterhouseCoopers identifies oversight of third-party service providers as the latest challenge for mutual fund company boards.
"Operating in a market that is heavily dependent upon service providers and that has faced some 1,300 enforcement actions with $5 billion in fines, penalties and disgorgement in the past two years, mutual fund directors must ask the right questions," said Tony Evangelista, a PricewaterhouseCoopers partner and head of regulatory compliance the firm's investment management industry group.
"The SEC is holding fund directors ultimately accountable, so they must continuously monitor and test the controls they put in place," he added.
In the wake of the Securities and Exchange Commissions month-old regulation requiring mutual fund companies to install compliance chiefs, industry executives are already bracing for new challenges.
Developing sound methods to test service providers remains a subject of great concern for mutual fund company executives. More than one-third of the officials polled by PwC said investment advisors are the most likely to make compliance presentations within the next 18 months. An equal number, 27%, of the survey group predicted fund administrators, transfer agents and shareholder servicing agents will make compliance presentations within that period.
"The fear for directors is that best practices will be set as a result of SEC enforcement actions and not through a process in which the industry has worked together for a solution to some of these frequently-asked questions," said Chip Voneiff, head of PwCs investment management industry group in the U.S.