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Emerald Group Publishing Limited
Copyright © 2006, Emerald Group Publishing Limited
We begin this issue of the journal with a comprehensive chronology from Thomas Smith of events since January 2003 that relate to mutual fund scandals such as trading abuses and questionable sales practices, and provides the reader an indispensable summary and perspective of related issues such as revenue sharing, directed brokerage, soft dollars market timing, late trading, and selective disclosure. Bruce Hiler, Thomas Kuczajda, and Aseel Rabie follow with a summary of NASD’s and the NYSE’s new supervisory rules regime. They emphasize the importance of the CEO, the chief compliance officer, and the chief legal officer becoming more significantly involved in compliance reviews and more knowledgeable about supervisory systems, highlighting a current regulatory trend that extends far beyond these particular rules. Then, in the first of two articles on hedge fund compliance, John McGuire provides a summary of record-keeping requirements for hedge funds and other private investment companies registered with the US Securities and Exchange Commission as investment advisers. Richard Zarin and William Zimmerman follow with an overview of US federal income tax provisions that hedge fund managers and advisers need to consider as they choose among various hedge fund structures; the authors discuss advantages and disadvantages of the more common structures. Robert Sobol provides the compliance officer with an introduction to a relatively new alternative to money market funds known as enhanced cash “yield-plus” funds. Shifting to the UK, we have two articles that reflect themes that are familiar to compliance officers in the USA. Terry Douglas summarizes the latest guidance from the new Joint Money Laundering Steering Group, which emphasizes a risk-based approach – getting to know the client’s business and monitoring the client’s activities and behavioral patterns rather than spending disproportionate time on mundane activities such as obtaining documents to verify the client’s identity – and, again, the potential personal liability for senior managers if they do not get directly involved with the firm’s anti-money-laundering programs. Following their article in our previous issue on the regulation of market misconduct, Robert Falkner and Jon Gerty provide a summary of the Financial Services Authority’s enforcement procedures on the regulation of market conduct pursuant to powers granted by the Financial Services and Markets Act 2000. Returning to one of our key themes, the FSA has stated that one of its key priorities is that it expects senior management to take responsibility for ensuring that firms identify risks, have appropriate systems and controls in place to mitigate them, and ensure that they actually work in practice. We conclude this issue with an article by Paul Johns that recommends a way for an investment company to apply its ethical values to a control system for its electronic communications; setting up such a system might provide a good occasion for a company to reexamine those ethical values.
Henry A. DavisEditor
James A.Tricarico JrConsulting Editor