Editor column

Citation

Davis, H.A. (2005), "Editor column", Journal of Investment Compliance, Vol. 6 No. 4. https://doi.org/10.1108/joic.2005.31306daa.001

Editor column

We begin this issue with Michael R. Rosella’s useful description of the detailed SEC reporting requirements for corporate insiders and advisers and brokers who exercise discretion over very large accounts. Then Charles S. Gittleman and Russell D. Sacks describe the Treasury Department’s final anti-money-laundering rules under the USA PATRIOT Act relating to foreign correspondent accounts and private banking accounts. What is particularly significant about these new rules is their requirement that financial institutions, including brokers, make judgments on the level of risk posed by each account that fits the definition of a “private banking account” and determine the appropriate diligence required. The requirement for such scrutiny is familiar to most private bankers but, according to Mr. Sacks, may represent a sea change to many brokers in how they think about their accounts. Next F. Scott Thomas and John C. Jaye discuss the implications for hedge funds of either converting to mutual funds or running mutual funds alongside existing hedge funds, helping to leverage their already-significant administration and compliance costs and grow assets under management. Robert Falkner and Jon Gerty provide a detailed summary of the Financial Services Authority (FSA) market abuse regime, implementing the EC Market Abuse Directive. The FSA’s new market abuse regime is consistent with the Financial Services and Markets Act 2000, implemented in late 2001, which significantly expanded the definitions and penalties for unlawful market practices. The UK appears to be moving in the direction of principle-based regulation, relying less on detailed rules and more on high-level, subjective standards, and the regulated community generally does not welcome this trend as a positive development. Chris Taylor describes how the compliance function and the role of the compliance officer have evolved in the UK over the past 20 years and how he sees the compliance function continuing to develop over the next few years, taking recent developments such as the EU Market in Financial Instruments (MiFID) into account. Mr. Taylor touches on many of the same themes covered by the Securities Industry Association Compliance & Legal Division in their article in the last issue of the journal on the role of compliance in the United States. Then Jeffrey C. Morton discusses how a firm develops a culture of compliance. It is a subjective, intangible concept. He points out that a firm can’t just go out and get a culture of compliance; such a culture must be ingrained in its daily ritual and decision making. But he also points out that the SEC examination staff has a formal approach when they search for documentation to support a firm’s culture of compliance. Joseph Saluzzi notes that institutional money managers and hedge funds clients compensate brokerage firms for trade ideas and proprietary brokerage services through soft dollars, which according to his estimates account for about half of Wall Street’s $18 billion annual brokerage commissions. He describes several products that help brokerage clients rank sell-side performance and track the services they are receiving for their soft-dollar compensation. Finally, Alex Proimos investigates the Australian Stock Exchange (ASX) Corporate Governance Council’s framework for improving corporate governance practices. Since Mr. Proimos wrote his article, the ASX Corporate Governance Council, consisting of 20 SROs and industry associations including the Australian Financial Markets Association, the Australian Investor Relations Association and the Institute of Chartered Accountants in Australia, conducted a user survey that found that a majority of respondents, including institutional and private investors, evaluate corporate governance information in the analysis and review of their investments. We always welcome your comments on the content of the journal and we are always receptive to articles contributed by you, the reader and practitioner.

Henry A.DavisEditor

James A. Tricarico JrConsulting Editor