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Mutual Fund Compliance Professionals

History

In 1924, the Massachusetts Investors Trust began operating in Boston. It was the first mutual fund company in the United States. Although the federal government regulated the mutual fund industry to some degree in its early years, it was not until 1940—when the Investment Company Act was passed—that comprehensive compliance procedures were established. According to the Investment Company Institute, Rule 38a-1 of the Investment Company Act of 1940 requires:

  • funds to adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws
  • that the fund’s policies and procedures provide for the oversight of compliance by the fund’s investment adviser(s), principal underwriter(s), administrator(s), and transfer agent(s)
  • that funds must review at least annually the adequacy of their and their service providers’ policies and procedures as well as the effectiveness of their implementation
  • That funds designate a chief compliance officer who is responsible for administering the fund’s compliance policies and procedures

During the past two decades, compliance departments have grown in size as a result of increasing government regulation and investor demands for transparency—especially in the wake of a major mutual fund scandal in 2003 in which portfolio managers at more than 10 major firms were implicated in insider trading, front running, and market timing, and received fines and other punishments from the Securities & Exchange Commission.