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February 1, 2004

SEC: Buysiders Must Do More

By Gregory Bresiger

Some investment companies have more fiduciary responsibilities under new Securities and Exchange Commission rules. The rules require buyside firms to have new compliance programs to prevent a rehash of the recent market timing scandals. More broadly, the rules mean that service providers - a term which covers a wide range of financial professionals since investment companies outsource many of their services - must also obey the new regs.

These changes have been welcomed by the Investment Company Institute (ICI), the main trade group for the fund industry, which has commended the regulator's actions over the past few months.

"The SEC's proposals are bold and far reaching. They address areas that are essential to renewed investor confidence in mutual funds. We commend the Commission and its staff for putting before the public a strong set of reform proposals," according to Matthew Fink, president of the ICI.

Nevertheless, a PricewaterhouseCoopers partner, Tony Evangelista, has warned that the new regs might run investment companies into problems because "when you have unaffiliated services providers it becomes much more difficult to oversee and take responsibility for certain aspects of their control environment."

Still, the ICI called on the NASD, formerly the National Association of Securities Dealers, and the SEC to go further on fund reforms. The ICI, arguing that more must be done to reduce conflicts of interest, wants the "abolition of virtually all third party, soft dollar arrangements, and a prohibition of directed brokerage." It also called for a two percent redemption fee on all short-term trading. And the ICI, in a shot at the NASD, noted that it has been calling for the regulator to enact a point of sale disclosure requirement for "more than six years."