IDC Task Force Report Identifies Key Characteristics for Strong Compliance Programs


Independent Directors Council published a new task force report on the characteristics of a strong mutual fund compliance program. These include an ethical, compliance-focused “tone at the top;” a collaborative approach by the fund’s chief compliance officer; a risk-based program tailored to the fund and the adviser’s business; transparency and candor among the CCO, fund board, and adviser; and knowledgeable staff armed with appropriate resources.

The adoption of the fund compliance program rule (Rule 38a-1 under the Investment Company Act of 1940) in 2003 presented mutual fund boards with the required addition of a chief compliance officer to administer the fund’s compliance program.

The report does not break any new ground or propose radical changes. But it does provide some resources to think about and evaluate compliance.

One of interesting structural issues with mutual funds is whether the CCO should serve as the fund’s and adviser’s CCO or only as the fund CCO. By separating the role, you remove potential conflicts. Plus, the fund CCO could serve as a useful complement or counterpoint to the adviser’s CCO. But the fund-only CCO may feel like an outsider and a threat since most of the employees will be working for the adviser.