7.22.2008 The SEC's Office of Compliance Inspections and Examinations (OCIE) posted a compliance alert on a variety of topics. OCIE periodically posts these alerts to summarize select areas that SEC examiners have recently reviewed during examinations and describes the issues we found and some of the practices we observed.
In the alert, OCIE made a number of observations about Code of Ethics, including the following:
- Adviser’s codes of ethics were incomplete.
- Adviser’s codes of ethics were not followed.
- Reporting requirements were not followed and/or monitoring was not performed.
- Disclosure was inaccurate.
The alert listed a number of effective controls used by investment advisers in the operations of their Codes of Ethics, as well as compliance review and reporting procedures.
The alert next discussed compliance practices with respect to the use of third-party proxy voting services, including the oversight and operational aspects of mutual funds’ proxy voting, and how advisers managed conflicts of interest in proxy voting. OCIE noted that mutual funds typically had an oversight process, which included board participation, to monitor the funds’ proxy voting. Among other things, examiners confirmed that fund boards reviewed and ratified the funds’ proxy voting policies annually and analyzed significant changes. Typically, the boards received a copy of the funds’ voting record on Form N-PX.
Some deficient practices highlighted by examiners included:
- Board oversight of use of proxy service providers appeared to be weak.
- Advisers did not document their assessment of proxy service providers.
- Funds voted inconsistently with their proxy voting policies.
- Funds did not file Form N-PX containing the funds’ proxy voting record as required.
- Fund disclosures appeared deficient.
- Improper fees were charged.
The alert, with respect to investment advisers, also covered valuation and liquidity issues in high yield municipal bond funds and soft dollar practices. In addition, it covered a number of broker-dealer compliance areas, including solicitation of advisory services, and compliance areas of interest to transfer agents.
Please click http://www.sec.gov/about/offices/ocie/complialert0708.htm. for a copy of the alert.