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This paper sets out to assess the role of the chief compliance officer (“CCO”), how the CCO performs his/her duties, and how the CCO interacts with the fund's board three years after the adoption of Rule 38a‐1 under the Investment Company Act of 1940.

Reviews the CCO's responsibilities under Rule 38a‐1, discusses how the CCO role has evolved since the rule was promulgated, and focuses on key issues such as oversight versus supervision, the annual review process, risk assessement, testing methodologies, and the annual report to the fund board on the adequacy and operation of the fund's compliance program.

Properly conducted compliance requires the support of a wide range of the advisory/administrative team with the CCO playing the role of conductor of the orchestra. More and more CCOs seek to distance themselves from approving the day‐to‐day actions of other employees, so they cannot be considered to have assumed supervisory responsibility for those employees. Although a fund is required to perform an annual review of the adequacy of its compliance programs and its Primary Service Providers' compliance programs, most CCOs have found the review process is ongoing and occurs continuously throughout the year. Now that these compliance programs have been in place for two years, more CCOs are devoting time and resources to identify high‐risk areas and to implement transactional, periodic, and forensic testing programs. The CCO annual report has taken many different shapes and sizes, but generally summarizes material changes to the fund's compliance policies and procedures that have already been reported to the board.

A current, practical assessment of the CCO role by expert lawyers who advise funds on their compliance programs.

To analyze the SEC’s newly adopted Rule 498 A, the variable contract summary prospectus rule, and concurrently adopted prospectus disclosure requirements in order to propose to insurance companies issuing variable contracts a project implementation plan for companies seeking SEC approval for summary prospectuses compliant with the new rules.

Discusses the history, requirements, effects, and expected implementation timeline of the new rules, then offers a detailed project plan and timeline for compliance.

The Rule does not require insurers to use summary prospectuses, but there are several compelling reasons for doing so. The Rule allows insurers to use a new concise and brief selling document, and by so doing to begin generating very significant cost savings as soon as May 1, 2021. The article provides a detailed implementation plan for insurance companies that want to comply with the new prospectus disclosure requirements and implement policies and procedures to begin using summary prospectuses.

A coordinated project implementation plan like that outlined in the article might assist insurance companies to make the requisite statutory prospectus revisions and prepare and obtain SEC approval of summary prospectuses by May 1, 2021.

Analysis from experienced attorneys who frequently advise insurance companies issuing fixed and variable annuities, and assist clients in navigating the complex regulatory requirements governing insurance and securities products.

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 challenges involved in meeting the new requirements of Rule 206 (4)‐7 under the Investment Advisers Act of 1940 and Rule 38a‐1 under the Investment Company Act of 1940 will be substantial for some organizations. At a minimum, all organizations will be required to document their compliance policies and procedures. Also, many firms, particularly fund managers and advisers with large or complex operations, most likely will be required to institute a number of additional control processes as a result of the new rules. Additionally, many organizations probably will need to reevaluate their compliance resource needs in order to successfully implement the new rules by their compliance date. Among the issues this article highlights are coverage of compliance programs in SEC examinations; development of functional policies, procedures, and controls; compliance staffing needs; and oversight by funds’ boards of directors.

To explain the January 6, 2016 written guidance (the “New Guidance”) issued by the Securities and Exchange Commission’s Division of Investment Management on payments made by mutual funds to intermediaries for distribution and non-distribution-related services.

Explains the SEC’s earlier guidance in the 1998 “Supermarket Letter,” the provisions of Rule 12b-1, the practice termed “distribution in guise,” the emphasis in the “New Guidance” on the role of a fund board’s business judgment, how Rule 12b-1 compliance fits into Rule 38a-1 compliance programs, specific fund activities and arrangements with intermediaries that are of concern to the SEC staff, and the focus of the New Guidance on an adviser’s fiduciary duty to mitigate or eliminate conflicts of interest.

The New Guidance articulates clear expectations that fund boards will have a process to evaluate the nature of intermediary payments and that fund advisers will provide boards with information in the advisers’ possession that the boards need to carry out that evaluation. Another intent of the New Guidance is apparently to give the SEC a clearer basis to bring enforcement actions concerning the use of fund assets to pay intermediaries for distribution-related activities.

Practical guidance from experienced investment management lawyers.

As part of an ongoing and potentially far‐reaching overhaul of investment company and investment adviser regulation, the Securities and Exchange Commission recently adopted Rule 206 (4)‐7 under the Investment Advisers Act of 1940 and Rule 38a‐1 under the Investment Company Act of 1940. These new rules require each fund and adviser to implement written compliance policies and procedures and to appoint a chief compliance officer (CCO) to administer those policies and procedures. While funds and advisers have until October 5, 2004 to comply with the new rules, the breadth of those rules requires a concerted, early effort to implement the new requirements successfully by that date. This article summarizes the requirements of the new rules, focusing on the CCO requirement, and addresses the following issues that advisers and fund boards will confront (among many others) in recruiting and appointing a CCO: (i) the source of the CCO’s compensation, (ii) potential supervisory liability of a CCO, (iii) outsourcing the position of CCO, and (iv) the desired qualifications of a CCO.

To explain the new U.S. Securities and Exchange Commission (“SEC”) Rule 2a-5 (the “Fair Value Rule”) under the Investment Company Act of 1940 (the “1940 Act”), which addresses the valuation practices of registered investment companies and business development companies.

Provides an overview of the Fair Value Rule, followed by a more detailed summary of the key provisions, including relevant guidance provided by the SEC in the release adopting the Fair Value Rule.

The Fair Value Rule establishes a specific framework, a standard of baseline practices across funds, and a set of required functions that must be performed in order to determine in good faith the fair value of a fund’s investments for purposes of applying Section 2(a)(41) of the 1940 Act.

Practical guidance from experienced investment management lawyers.

Compliance with SEC Rule 38a‐1 and the requirement for a fund to have a chief compliance officer (CCO) requires fund companies to take an in‐depth look at how their organizations deal with compliance as a whole and how their service providers fit into the compliance equation. A fundamental consideration is cost, and the CCO role can carry a significant price tag. Experience counts too. Even though the functions of this role are spelled out, the role is yet untested in the industry. Hiring an outside CCO and outsourcing compliance services offer several benefits to a fund including economies of scale, consistency, the outsourcing provider’s breadth of experience and expertise, and elimination of conflicts of interest within the investment advisor organization when separate resources/staff conduct compliance activities.

The October 5, 2004 deadline for complying with Rule 206(4)‐7 under the Investment Advisers Act of 1940 has come and gone and it’s a whole new world for compliance with rules, regulations, and regulator expectations. Much has changed with regard to compliance in our industry over the past several years ‐ and still more remains to be interpreted, digested, and put into place before the dust can settle. One thing is clear: there is no such thing as business as usual, nor should we expect that any time soon. The fundamental concern at this point in time lies in how SEC Rule 38a‐1 should be ‐ and will be ‐ enforced throughout the industry. If history is any teacher, the next several years undoubtedly will feature clarifications and guidance from regulators that will help fund companies succeed in adhering to the rule’s requirements. While those of us directly involved in day‐to‐day compliance are experiencing rapid change at unprecedented levels, this is not the first time in our history that such sweeping changes have been prevalent.

The article seeks to outline the requirements under the Investment Company Act of 1940 (the “Investment Company Act”), the Investment Advisers Act of 1940 (the “Advisers Act”) and related US Securities and Exchange Commission (the “SEC”) rules and interpretive guidance for structuring performance‐based fees for investment advisers and sub‐advisers to registered investment companies (or mutual funds).

The article discusses the appropriate structure and timing for performance fees and describes in detail how SEC standards for structuring performance fees have evolved over time. The article explains recent SEC enforcement actions against investment advisers for improperly structured performance fees, and notes that the use of performance fees has once again become a focus of SEC scrutiny.

The article concludes that, despite a common perception that performance fees create an effective incentive to improve fund performance by more closely aligning the interests of the adviser and fund shareholders than traditional fee arrangements, there is minimal empirical evidence proving that the use of performance fees translates into superior fund performance. Investment advisers who charge performance fees to mutual fund clients should consider reevaluating the structure and payment process for the performance fees in light of recent SEC scrutiny and enforcement actions, adviser compliance obligations under Rule 206(4)‐7 of the Advisers Act, and fund compliance obligations under Rule 38a‐1 of the Investment Company Act.

The article provides a concise overview of the regulatory requirements for structuring performance fees charged by mutual fund advisers.