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Statement of Position (SOP) 07-2 provides guidance to practitioners on reporting on the effectiveness of controls over compliance at service providers.
SEC Rules require funds and investment advisers to designate a chief compliance officer (CCO) to administer compliance policies and procedures at these entities. Many operations of funds and, in some instances, operations of investment advisers are carried out by other entities (service providers) that have their own compliance policies and procedures that may affect or be part of a fund’s or investment adviser’s compliance policies and procedures. SEC Rules require funds that use service providers to establish policies and procedures that provide for oversight of compliance at the following service providers: investment advisors, principal underwriters, administrators and transfer agents. Because it may be impractical for a fund or its CCO to directly review the policies and procedures of its service providers, a fund may use a report on the service provider’s compliance policies and procedures to satisfy this requirement.