10/10/2006 Mutual Funds May Share SAR Filing Information With Controlling Investment Advisers
In “Frequently Asked Questions: Suspicious Activity Reporting Requirements for Mutual Funds,” a new posting on FinCEN’s website, the agency answers a number of questions it and the SEC have received since the issuance of final mutual fund reporting rules in May (covered in the August Monitor). Many of the questions repeat statements made in the preamble to the final rules, but the release is somewhat more accessible on certain issues and should be read by compliance personnel. One question that goes beyond previous pronouncements concerns whether a mutual fund may disclose the fact of filing a SAR to an investment adviser that controls the fund. FinCEN acknowledges that investment advisers may need to review compliance by mutual funds that they control and concludes that the importance of this responsibility is sufficient to outweigh the general prohibition against disclosing that a SAR has been filed. This applies even to controlling investment advisers that are foreign. In the event that the corporate structure of an investment adviser includes multiple parent companies, the filing institution’s SAR may even be shared with each entity in the chain of control. However, because the mutual fund would be liable for direct or indirect disclosure of a SAR filing by the investment adviser, FinCEN states that “the mutual fund, as part of its anti-money laundering program, must have written confidentiality agreements or arrangements in place specifying that the investment adviser must protect the confidentiality of the Suspicious Activity Report through appropriate internal controls.” Because a foreign investment adviser might receive disclosure requests in jurisdictions subject to foreign law that may be inconsistent with U.S. policies, such concerns must be addressed in the confidentiality agreements or arrangements. The foreign adviser may disclose “underlying information (that is, information about the customer and transaction(s) reported) that does not explicitly reveal that a Suspicious Activity Report was filed and that is not otherwise subject to disclosure restrictions.” FinCEN notes that an investment adviser that performs limited functions in managing a mutual fund’s securities portfolio (a “subadviser”) would not typically control the fund and would, therefore, not be entitled to knowledge about the SAR filing. This FAQ release will be the subject of further analysis in the December issue of the Monitor.
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