Compliance June 11, 2003

House Bill Would Beef Up Fund Disclosure Regs

June 11, 2003 (PLANSPONSOR.com) - Mutual fund investors would have access to a flood of new information on mutual fund costs and discounts, "soft-dollar" deals, and revenue-sharing arrangements under a new US House of Representatives proposal.
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>According to a news release, Representative Richard Baker, (R-Louisiana), chairman of the House Capital Markets Subcommittee, introduced The Mutual Funds Integrity and Fee Transparency Act of 2003, H.R. 2420, to both improve fund transparency and strengthen funds’ corporate governance standards. The legislation takes into account recommendations recently made by the US Securities and Exchange Commission (SEC) (See  Mutual Funds Hit With New Disclosure Requirment ). 

The Baker announcement said the bill would:

  • Give investors much more information about fees by directing the SEC to issue rules forcing additional disclosure about estimated operating expenses, in dollar amounts, incurred by each shareholder; portfolio transaction costs in a way that will facilitate comparison among funds; soft dollar arrangements; directed brokerage arrangements used to obtain fund distribution; and revenue sharing arrangements used to obtain fund distribution.
  • strengthen director oversight of soft-dollar and certain distribution arrangements by requiring fund advisors to submit an annual report to directors on revenue sharing, directed brokerage and soft-dollar arrangements. It also imposes a fiduciary obligation on fund directors to supervise these arrangements and ensure that they are in the best interests of the fund. The bill also requires the SEC to conduct a study of soft-dollar arrangements and consider the implications of repealing the safe harbor for them.
  • enhance corporate governance and management integrity by requiring two-thirds of all board directors to be independent, requiring the fund chairman of the board to be independent, directing the SEC to require funds to disclose how portfolio managers are compensated; strengthening the definition of an independent director by authorizing the SEC to issue rules to exclude from that definition persons with business or close family relationships with the fund company.
  • apply Sarbanes-Oxley reforms to mutual funds. It would require all mutual funds to abide by the same audit committee standards required of exchange-listed companies under the Sarbanes-Oxley Act, which ensures strengthened auditor independence and accountability (See    SEC Finalizes Audit Committee Rules ).

“Mutual funds are the investment tool of choice of the growing millions of ordinary, working families participating in the markets and providing the liquidity vital to the function of our capital markets and the growth of our economy,” Baker said in a statement. “It’s only proper that Congress make sure that they get the facts they need to make informed investment choices and that their money is being managed in the most professional manner possible.”

The Capital Markets Subcommittee will hold a hearing on the legislation on June 18.

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