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The author, Director of the Office of Compliance Inspections and Examinations at the SEC, talks about how the anti‐money laundering laws apply to securities firms while also discussing a new examinations initiative that the SEC, NYSE, and NASD are undertaking to focus the industry's attention on compliance programs that detect and prevent money laundering.

Valuation of portfolio securities continues to hold the limelight in the arena of mutual fund regulation. For the last four years, mutual fund regulators have repeatedly emphasized the need to adopt or revise procedures to address valuation issues that address modern market conditions resulting from such forces as globalization and the development of derivatives and other exotic securities.

To summarize three implementing rules issued over the past year under the USA Patriot Act by the US Treasury Department Financial Crimes Enforcement Network (“FinCEN”) and to make some basic recommendations designed to help firms improve their overall anti‐money laundering compliance efforts.

Summarizes three rules issued in the past year that are of particular significance to the securities industry: the final 312 rule for foreign correspondent and private banking accounts; the insurance company AML program and Suspicious Activity Reporting (“SAR”) rules; and the mutual fund SAR rule.

Makes the following recommendations for firms to improve their anti‐money laundering efforts: suspicious activity monitoring should fit your firm; information sharing may help fact gathering; anti‐money laundering programs should be applied across the firm; invest in training; and audit is an invaluable tool.

The Patriot Act, in a short amount of time, has had a major impact on the way securities firms and all financial institutions conduct business. Notwithstanding the achievements of the public and private sectors in implementing the USA Patriot Act, more can be done. While the USA Patriot Act provides significant tools to combat illicit activity, to be successful law enforcement and industry must continue to coordinate their efforts, and work hand‐in‐hand.

The USA Patriot Act and its implementing regulations required mutual funds to implement anti‐money laundering (AML) programs by July 24, 2002. This legislation, which substantially amended the Bank Secrecy Act (BSA), no doubt will have the most far‐reaching affect on the fund industry since the Investment Company Act was adopted in 1940. It also will present new challenges to fund legal counsel and compliance personnel. Until the Patriot Act was signed into law, the regulatory framework for funds generally focused on protecting investors through mandatory disclosure obligations and self‐dealing prohibitions. AML programs add a new focus. An AML program must be designed to, among other things, prevent a fund from being used for money laundering or the financing of terrorist activities. While banks have had AML programs for several decades, these requirements are uncharted waters for mutual funds, as well as for most other securities firms.

Under the new Compliance Program Rules, each U.S. registered investment adviser and U.S. registered investment company was required to designate a Chief Compliance Officer (“CCO)” by October 5, 2004. The CCO title is expected to carry supervisory responsibility for many of the newly appointed officers, which may lead to personal liability if they are charged with a failure of the duty to supervise. As a result, there is renewed interest in the standard of care applicable to supervisory personnel of investment advisers and the manner in which they may be insulated from regulatory liability for claims of failure to supervise persons under their control who violate certain federal securities laws (“Federal Securities Laws)”.

The SEC and the SROs have demonstrated through the threat of significant enforcement action that the rules requiring the capture, retention, and review of e‐mail communications will be strictly enforced and, where violated, significant disciplinary penalties will be imposed. Securities firms must use automated technology to comply with such rules and establish, maintain, and enforce its supervisory system to ensure compliance. Moreover, until the SEC and the SROs have addressed the record‐keeping requirements for instant messaging, firms would be best advised to take a conservative view and attempt to capture the messages, if the available technology will allow it, or prohibit the use of such technology.

Certain institutional trading operations executives of major broker‐dealers currently are indicating that there is a paucity of guidance from regulators and others on the potential characteristics of anti‐money‐laundering activities in their specific business areas. Because of requirements to file suspicious activity reports with regulatory authorities where these enterprises suspect potential money‐laundering activities, these executives are trying to build and grow the best possible methods of detection to detect potential instances of money laundering, especially where they may have little information as to the identity of the parties who are originating transactions in their institutional contexts. Because of these issues, the existing securities industry AML guidance that is available must be analyzed carefully, keeping in mind the need to construct new scenarios addressing the specific circumstances of the institutional brokerage context.

The current financial crisis revealed weaknesses in the US financial system, including the difficulty of valuing complex assets. This paper seeks to examine regulatory and compliance issues for hedge funds valuing complex assets.

Within the context of hedge fund valuation, the paper provides a general overview of: the regulatory background of hedge funds and the central role valuation plays in the operation and regulation of such funds; relevant cases brought by the SEC; and a discussion of valuation best practices.

Hedge funds are not “unregulated.” There is a body of law and accounting standards that applies to hedge fund valuation. Nevertheless, hedge fund valuation standards are evolving in this era of heightened regulatory scrutiny. The common concepts that have emerged from valuation best practices will likely provide the underpinning for any regulatory initiatives regarding hedge fund valuation.

By the time of publication, Congress may pass pending legislation governing hedge funds and there may be additional notable SEC cases on hedge fund valuation.

The economic crisis has revitalized the SEC's interest in this area. Consequently, hedge funds should consider adoption of a compliance program that specifically targets valuation by stressing investor disclosure, independence of the valuation function, comprehensive written valuation polices and procedures, and internal controls.

The paper compiles and organizes in one place the regulatory and compliance standards governing asset valuation by hedge funds.

To discuss the scope and limits of the compliance department's responsibilities in securities firms.

Describes the background to establishing stand‐alone compliance departments; the organizational structure of compliance departments; typical compliance functions; how the compliance department coordinates with business units, senior management, internal audit, and risk management; the distinction between a firm's responsibility to comply with applicable laws and regulations and the role of the compliance department; the distinctions between responsibilities of the compliance department and those of supervisors and senior management; and emerging regulatory trends impacting the compliance department.

New business activities and new regulations have placed increased demands on, and scrutiny of, compliance activities over the past few years. Regulators are looking to compliance departments to play an increasingly important role in identifying proactively and responding to potential wrongdoing.

Explains the critical importance of a well staffed, experienced, and adequately funded compliance department.

The purpose of this paper is to describe the exposure and the responsibilities of a broker‐dealer's senior management under NASD's and the NYSE's new rules, emphasizing a regular review of supervisory and compliance systems.

Describes new rules, contained primarily in NASD Rules 3010, 3012, and 3013 and amendments to NYSE Rule 342, and the SROs' intentions underlying those rules; provides additional regulatory guidance on privilege issues related to CEO/CCO meetings and reports, documentation of compliance with the new rules, periodic review of office category designations, specific requirements for “offices of convenience,” and procedures to ensure up‐to‐date identification of producing managers; assesses the potential increase in exposure for CEOs, CCOs, and others under the new rules.

Both the NASD and the NYSE have made clear by their establishment of the new supervisory framework and in guidance to members that they expect increased attention to maintaining adequate compliance and supervisory systems at the highest levels of their member organizations.

Conveys an important message concerning the need for CEOs and CCOs to become increasingly involved in compliance reviews and knowledgeable about supervisory systems.