In a no-action letter, the SEC Division of Investment Management ("Division") stated that a mutual fund's board of directors may, rather than making its own determination, reasonably rely on quarterly written representations from the fund's chief compliance officer ("CCO") that the fund's transactions effected in reliance on Investment Company Act ("ICA") Rule 10f-3 (Exemption for the acquisition of securities during the existence of an underwriting or selling syndicate), 17a-7 (Exemption of certain purchase or sale transactions between an investment company and certain affiliated persons thereof) and 17e-1 (Brokerage transactions on a securities exchange) do in fact comply with regulatory requirements, as well as with any procedures adopted by the board. According to the Division, the no-action relief is consistent with ICA Rule 38a-1 (Compliance procedures and practices of certain investment companies), which was adopted to improve the effectiveness of a mutual fund's compliance program. By allowing boards to rely on a CCO's written representation, boards will "avoid duplicating certain functions commonly performed by, or under the supervision of, the CCO."
Commentary / Steven Lofchie
This is a good letter. There has been an unfortunate recent legislative and regulatory tendency to push responsibility up to an entity's board of directors, or chief executive officer, even where the matter did not require such high-level attention. Elevating matters inappropriately just detracts from the ability of senior management to do their real jobs. This letter is a good step in the opposite direction by allowing an appropriate delegation of responsibility.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
