As we entered 2007, the industry outlook remained positive, with expectations that it will continue to grow (given cooperative world economies and markets) through developing, marketing and distributing high performing investment products with fair and competitive fees, while providing quality service to investors. Yet, it's also hard to recall of period as full of legislative and regulatory uncertainty -- marked by the likelihood of fundamental, unparalleled changes within our financial systems. Similarly, it's hard to recall a time when the operating complexities of the US investment management industry have been as striking. Adding to these challenges, investors are rightly holding the industry to high fiduciary and ethical standards and demanding transparency. Investors are being heard as never before.
This mix of forces requires the industry to continue investing in its structural foundation -- internal control directed at the achievement of financial reporting, compliance, and operations objectives -- so that it remains strong enough to meet the significant challenges these forces pose. In 2007, the industry's vigilance and work in the area of internal control will be an important factor in maintaining investor confidence.
In this publication, we present our observations about five areas of internal control with important ramifications for the industry, and we offer suggested practices to address challenges seen in each area.
- Managing potential conflicts of interest
- Overseeing third-party service arrangements
- Addressing the risks and reporting of complex investment strategies and financial instruments
- Brining more focus to tax matters
- Staying alert to other potential risks
