SAS 70 and Sarbanes-Oxley Raise Questions for Asset Managers
At the AMF Quarterly Meeting, Bruce Marcus of Deloitte & Touche moderated a panel with Steve Chittenden of Loomis Sayles, Shannon Goode of SS&C Technologies and Bill Vastardis of EOS Fund Services (pictured right to left) which discussed the impacts of Sarbanes-Oxley on the operations business of asset managers. The panel also addressed SAS 70 and specifically discussed its four sections, named the key controls that auditors examine and reviewed the differences between a Type I and a Type II SAS 70 Audit Report. Bruce Marcus stated that there is an industry trend for asset management firms to do a Type II Report. According to Mr. Marcus, both the SEC and the PCAOB have communicated that the Type II SAS 70 is becoming the standard.
Bruce Marcus will speak on SAS 70 to the AMF Senior Executives Group at its meeting in Boston on Thursday, November 4. The Group will begin to discuss the possibility of working toward a standard SAS 70 for asset managers. Highlights of yesterday's panel and other parts of the Quarterly Meeting will be posted to the AMF Web site early next week. Questions regarding the work and mission of the Senior Executives Group may be directed to Joseph Sack, Executive Director of the Group.
SEC to Require Hedge Fund Adviser Registration: February 2006
The staff of The Asset Managers Forum Senior Executives Group attended an SEC meeting on Tuesday, October 26, 2004. Immediately following the meeting, the staff provided a real-time account of the meeting proceedings to approximately 50 members during an industry call.
At the meeting, the SEC voted 3 to 2 in favor of a rule that will require hedge fund advisers to register with the Commission. The new rule becomes effective in February 2006. Paul Roye, Director of the Division of Investment Management at the SEC, offered the staff's recommendations to the Commission's Board. The staff cited the growth of the hedge fund industry as among the reasons to require registration. The hedge fund industry has grown approximately 260 percent in the last five years with assets nearing $1 trillion in approximately 7,000 funds. The SEC staff recommended registration as a way to gather information about the industry, to deter fraud, to require hedge funds to adopt compliance controls (such as designating a chief compliance officer) and to protect small investors that may indirectly have investments in hedge funds through mutual or pension funds.
The final rule faced heavy opposition. SEC Commissioners Atkins and Glassman ardently objected to the rule and submitted official statements of dissent. The two Republican Commissioners argued that the proposal was rushed through the rulemaking process and that the comments and suggested alternatives received were not carefully considered. The SEC received 153 comment letters, of which, 82 opposed the registration proposal. In addition, it was stated that the Commission lacked the staff resources to adequately conduct hedge fund adviser examinations. At current estimates there are fewer that 200,000 high net worth individual investors. Also, it is a concern that by requiring hedge fund advisers to register, it would create a false impression that the SEC is offering its "seal of approval". On a more fundamental level, it was questioned whether the SEC has the authority to implement a rule of this nature. On the broader scale, the rule proponents were criticized because registration may affect the important liquidity role that hedge funds provide in the market.
The AMF will continue to report on developments to its members going forward.
Click here to read SEC Chairman Donaldson's Remarks on Hedge Fund Registration
Click here to read SEC Chairman Donaldson's Closing Remarks
Click here to read SEC Commission Cynthia Glassman's Position on Fund Registration
Click here to read SEC Staff Recommendations offered by SEC Director Paul Roye