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Mutual Fund Directors Must Be Vigilant in Addressing Risks

In remarks to the Mutual Fund Directors Forum, SEC Chair Mary Jo White outlined some of the risks and challenges that mutual fund directors face, and she shared her view of the role of directors in assessing risks. Ms. White acknowledged the challenge of determining the appropriate dividing line between a director’s oversight responsibility and day-to-day management. She also advised that the SEC is focused on that issue as it considers proposed reforms to address the increasingly complex portfolios and operations of mutual funds and exchange-traded funds. She indicated that the staff will carefully consider these matters as it prepares rule recommendations for the SEC’s consideration.

Key Takeaways

The following are key considerations for mutual fund directors:

  • Directors must be vigilant in addressing potential risks and plan ahead, rather than react once an event has occurred

  • Directors should ask management how the fund’s compliance policies and procedures, business continuity plans, and back-up systems will work in volatile situations

  • Directors should ask questions to ensure that they understand whether the fund’s investments are properly aligned with its liquidity needs and redemption obligations

  • Directors should assess the back-up systems and redundancies of service providers to the fund that value the fund and keep track of its holdings and transactions, and consider potential alternative systems in case of a business disruption

  • Directors must ensure that fund payments to financial intermediaries that are used to finance distributions are paid pursuant to a Rule 12b-1 plan

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About this Author

Peter D. Fetzer, Securities Lawyer, Foley Lardner, Mergers Attorney
Partner

Peter Fetzer is a partner and business lawyer with Foley & Lardner LLP. His practice focuses primarily in the areas of securities regulation, mergers and acquisitions, corporate governance and general corporate counseling to mutual funds, exchange traded funds, publicly traded investment advisers and public companies.

414.297.5596
Stuart E. Fross, Foley Lardner, Securities lawyer, Finance Attorney
Partner

Stuart Fross is a partner and business lawyer with Foley & Lardner LLP where he concentrates his practice on securities laws and regulations, as part of the Private Equity & Venture Capital, Transactional & Securities and International Practices.

Mr. Fross’ main focus is investment managers and pooled investment vehicles, including U.S. registered open-end, closed end and exchange traded funds, bank collective investment funds (with an emphasis a stable value funds), UCITS funds, as well as private funds, organized in the US and offshore. Mr. Fross has extensive experience in equity, high-income and fixed income trading operations, as well as with distribution related issues for registered and unregistered funds. 

617-50-3382