FYI: Risk Alert on Investment Company Compliance

FYI: OCIE has issued a Risk Alert highlighting compliance deficiencies and weaknesses observed during examinations of nearly 300 investment companies, as well as specific issues observed during examinations of money market funds (MMFs) and target date funds (TDFs).

Investment Companies Generally

The most often cited deficiencies and weaknesses observed over a 2-year period included:

  • Fund compliance rule, in particular designing a compliance program without taking into account the nature of the fund’s business, not following or enforcing policies and procedures, inadequate service provider oversight, and annual reviews not performed or not addressing (or not adequately documenting) a review of the fund’s policies and procedures and the effectiveness of their implementation (as required by the fund compliance rule).
  • Disclosures to investors, in particular incomplete or potentially misleading disclosures when compared to the fund’s actual activities.
  • 15(c) process, in particular inadequate information requested or considered by boards when approving agreements, and inadequate discussion of factors and conclusions forming the basis for board decisions (or lack of supporting documentation such as board minutes).
  • Code of Ethics, in particular failure to implement the code or failure to document implementation (such as access person exceptions granted), failure to follow or enforce the code, and failure to comply with approval and reporting obligations under the code.


Based on examination of more than 70 MMFs, OCIE staff observed that MMFs appeared to be in substantial compliance with the amended MMF rules that went into effect in 2016. However, instances of deficiencies or weaknesses were observed related to portfolio management practices, and compliance program and disclosures often stemming from inadequate documentation and procedures.


Based on examinations of over 30 TDFs, OCIE staff also observed TDFs to be in general compliance with the 1940 Act in the areas review. However, deficiencies or weakness were noted in certain instances, including inadequate disclosures regarding asset allocation/glide path, conflicts resulting from the use of affiliated funds and advisers, and incomplete or missing procedures for areas such as monitoring asset allocation/glide path changes, and ads and sales literature.

The Risk Alert provides greater detail of the exam findings in each of these areas and, in cases, specific examples of the issues found. The timing of the Risk Alert affords funds the opportunity to take these findings into consideration as they move toward their next Annual Review and 15(c) renewal periods.

Risk Alert:

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