On September 10, 2009, the Independent Directors Council issued a task force report entitled “Board Oversight of Fund Compliance.” The report discusses the variety of ways in which funds have implemented their compliance programs, as required by Rule 38a-1 under the 1940 Act, and suggests certain core characteristics of a successful compliance function. The goal of the report is to provide a comparative tool, by highlighting various alternatives and practices, that will assist boards in evaluating fund compliance programs.
The report discusses the following common themes amongst fund groups regarding the mission and philosophy of compliance: (1) a fund board can have a significant and immediate influence in defining the goals and priorities of the fund’s compliance function; (2) compliance responsibility should be allocated to each business unit that makes up the fund’s or adviser’s compliance operation; (3) compliance should be structured as a collaborative function that enhances operations and controls, and not structured to punish outliers; and (4) compliance should be proactive, anticipatory and seek to educate all personnel who contribute to its effectiveness.
The report also discusses matters relating to the fund CCO, including considerations regarding the employment of the CCO (e.g., whether the fund CCO should be the same as the adviser’s CCO), as well as the CCO’s relationship with management and the fund board.
Finally, the report lists the following characteristics that the task force believes support a strong compliance regime: (1) a strong “tone from the top” (i.e., management and the fund’s board); (2) the CCO operating in a collaborative manner allows the CCO to undertake his or her role and responsibilities professionally and effectively; (3) a continuous and thoughtful risk-based program; (4) transparency and candor in compliance disclosure between the CCO, the board and management; and (5) effective compliance personnel (including the CCO), armed with appropriate resources.