Service Providers Rush To Fill Compliance Need

Providers of mutual-fund services are spreading their compliance expertise in the wake of a Securities and Exchange Commission rule that requires mutual funds to appoint a chief compliance officer and have policies and procedures for preventing securities law violations.

The regulation, known as the compliance rule, is intended to curtail abuses such as market timing and late trades that have plagued the investment industry of late.

The compliance rule makes service providers such as securities transfer agents, fund administrators, and underwriters responsible for helping mutual funds develop a compliance culture. To that end, service providers are building gateways for sharing their own compliance policies and procedures with the funds themselves.

"As a service-delivery organization, we need to support our clients' compliance efforts," says Virginia Meany, global fund services product executive at J.P. Morgan Investor Services. Technology plays a key role, she says.

J.P. Morgan Investor Services, which has $8.6 trillion in assets under custody, has built a compliance solutions program through which it's conducting one-on-one information sessions with clients and allowing them to "take a look at our internal systems," Meany says. Those systems, she says, allow the bank to "monitor control practices and identify and mitigate risks," such as potential violations of investment guidelines, external regulations, and internal risk-exposure limits.