October 19, 1994
TO: SEC RULES COMMITTEE NO. 112-94
RE: DRAFT MUTUAL FUND INTERNAL COMPLIANCE RULE AND POSITION
PAPER
__________________________________________________________
Enclosed for your review and comment is a draft submission
to the SEC proposing a new rule to require each registered
management investment company to establish an internal compliance
system that meets certain minimum requirements. Our submission
consists of a draft rule and a position paper in support of the
rule proposal.
We plan to discuss the draft submissions at the Committee
meeting on October 25. If you cannot attend the meeting,
comments should be submitted to the undersigned at 202/326-5834
(fax: 202/326-5827) no later than October 28, 1994. The draft
submission should be treated as confidential information and not
made available to the public.
As we discussed at the committee meeting in April, last fall
SEC Chairman Levitt requested the Institute's views on the best
way to promote greater self-regulation in the mutual fund
industry. On November 19, the Institute submitted a letter to
Chairman Levitt suggesting that an SEC-mandated internal
compliance system is the best way to ensure compliance with
regulatory standards. In January, the SEC asked the Institute to
prepare a detailed submission setting forth the industry's views
on the appropriate scope of an internal compliance rule. In
response to the SEC's request, the Institute formed a working
group on mutual fund internal compliance earlier this year to
develop our proposal.
As you review the enclosed materials, please note that the
draft position paper emphasizes that industry support for an
internal compliance rule is contingent on the reasonableness of
the obligations imposed on the industry. In particular, our
submission notes that a) the industry opposes the imposition of
uniform compliance policies and procedures; b) an internal
compliance system cannot be expected to provide absolute
assurance that violations will not occur; c) the rule should not
create new litigation risks for those who act in a reasonable
manner; and d) the SEC should commit to use its best efforts to
preserve the confidentiality of any compliance documents supplied
to the Commission.
Angela C. Goelzer
Associate Counsel
cc: Mutual Fund Internal
Compliance Working Group