[11058]
June 17, 1999
TO: COMPLIANCE ADVISORY COMMITTEE No. 23-99
SEC RULES MEMBERS No. 39-99
RE: LORI RICHARDS' SPEECH AT ICI COMPLIANCE CONFERENCE
______________________________________________________________________________
Lori Richards, the Director of the SEC's Office of Compliance, Inspections, and Examinations
("OCIE") gave the luncheon address at the Institute's Mutual Fund Compliance Conference on June 10,
1999. Attached is a copy of her remarks, which are summarized below.
Ms. Richards noted that the fund industry and the Commission share the common goal of
wanting to ensure full and complete compliance with the law, which necessitates the devotion of
adequate resources and attention to compliance on an ongoing basis. She discussed how the SEC's
inspection process supports fund compliance. In particular, she said that the obligation of advisers to
supervise is "perhaps the most important part of the securities laws -- because it underpins all others."
According to Ms. Richards, this is why OCIE spends most of their time in examinations talking to the
firm about the systems they have set up to supervise employees and ensure compliance. She stressed
that every good compliance procedure must be designed both to prevent and to detect violations. She
commended the industry for its prevention systems noting that this is something the industry has
"excelled at."
Based upon Ms. Richards' experience, she believes the following factors are important for a
good compliance system: good supportive management; fund board members who are aware of the need
for strong compliance; comprehensiveness of the system; written policies; regular reassessment of the
system; procedures to review exceptions; use of technology; paying particular attention to where the
money is ("[p]ay special attention to high flying portfolio managers"); strict internal enforcement; lack of
complacency; and, hiring good, smart people.
Ms. Richards next highlighted five areas of weakness that her staff has identified during recent
mutual fund inspections and on which fund compliance staff should focus. These areas are: allocation
of initial public offerings; soft dollars and brokerage allocation (including best execution); the role of the
board of directors; personal trading; and performance advertising.
Tamara K. Reed
Associate Counsel
Attachment
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