SEC Describes Pervasive Compliance Violations at Mutual Funds and ETFs
The SEC’s Division of Examinations published a Risk Alert detailing a wide range of compliance and regulatory violations observed during examinations of funds and ETFs.
During exams of registered funds and ETFs, the SEC found numerous violations and weaknesses in compliance programs, conflicts of interest and disclosure. The SEC cited failures to follow investment restrictions, weaknesses in securities valuation practices, trading and trade allocations missteps, and fund performance misrepresentations. The Risk Alert also noted several types of conflicts of interest including advisers affiliated with index providers. Disclosure failures included investment strategies, expenses and fees, and benchmarks. The staff offers some compliance best practices as a guide for funds, ETFs, and their service providers. The examinations focused on custom-built index ETFs, smaller ETFs, funds with securitized investments, funds with aberrational performance, new fund managers, and advisers that manage both registered and private funds.
The Division of Examinations has targeted compliance practices at registered funds over the last few years. If nothing else, this Risk Alert offers a roadmap for compli-pros working for registered funds or their managers.
Read SEC Risk Alert here.