Supporting Statement_Rule 38a-1

OMB CONTROL NUMBER: 3235-0586

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 38a-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Rule 38a-1 under the Investment Company Act of 1940 (“Investment Company Act”) 1 is
intended to protect investors by fostering better fund compliance with securities laws. 2 The rule
requires every registered investment company and business development company (“fund”) to:
(i) adopt and implement written policies and procedures reasonably designed to prevent
violations of the federal securities laws by the fund, including procedures for oversight of
compliance by each investment adviser, principal underwriter, administrator, and transfer agent
of the fund; (ii) obtain the fund board of directors’ approval of those policies and procedures and
the policies and procedures of each investment adviser, principal underwriter, administrator, and
transfer agent of the fund; (iii) annually review the adequacy of those policies and procedures
and the policies and procedures of each investment adviser, principal underwriter, administrator,
and transfer agent of the fund, and the effectiveness of their implementation; (iv) designate a
chief compliance officer to administer the fund’s policies and procedures and prepare an annual
report to the board that addresses certain specified items relating to the policies and procedures;
and (v) maintain for five years the compliance policies and procedures and the chief compliance
officer’s annual report to the board.

1

15 U.S.C. 80a-1 et seq.

2

17 CFR 270.38a-1.

1

2.

Purpose and Use of the Information Collection

The purpose of the information collection requirements in rule 38a-1 is to ensure that
funds maintain comprehensive, written internal compliance programs that promote compliance
with the federal securities laws. The information collections also assist the Commission’s
examination staff in assessing the adequacy of funds’ compliance programs.
3.

Consideration Given to Information Technology

Rule 38a-1 does not require the reporting of any information or the filing of any
documents with the Commission. Rule 38a-1 does require funds to maintain written policies and
procedures. Each fund also is required to maintain for at least five years a copy of the annual
compliance report provided to the fund’s board of directors. The Electronic Signatures in Global
and National Commerce Act 3 and the conforming amendments to rules under the Investment
Company Act permit funds to maintain records electronically.
4.

Duplication

Rule 38a-1 imposes a broad requirement that funds have in place written compliance
policies and procedures. Funds also are subject to certain requirements elsewhere in the federal
securities laws that require them to maintain written policies and procedures. The staff believes,
however, that any duplication of recordkeeping requirements is limited. Moreover, rule 38a-1
does not require funds to maintain duplicate copies of records covered by these more targeted
requirements, and a firm’s compliance policies and procedures are not required to be maintained
in a single location. The staff believes, therefore, that any duplication of regulatory requirements
does not impose significant additional costs on funds. The Commission periodically evaluates

3

P.L. 106-229, 114 Stat. 464 (June 30, 2000).

2

rule-based recordkeeping requirements for duplication and reevaluates them whenever it
proposes a rule or a change in a rule.
5.

Effect on Small Entities

Funds, regardless of their size, are subject to the requirements of rule 38a-1. Effective
internal compliance programs are essential for firms of all sizes. Rule 38a-1 affords funds the
flexibility to tailor their compliance program to the nature of their business. Small firms, which
generally have less complex and more limited operations, likely need less extensive compliance
programs than their larger counterparts. Thus, rule 38a-1 does not inappropriately burden small
entities. The Commission believes that it could not adjust the rule to lessen the burden on small
entities of complying with the rule without jeopardizing the interests of investors in small funds.
The Commission reviews all rules periodically, as required by the Regulatory Flexibility Act, to
identify methods to minimize recordkeeping or reporting requirements affecting small
businesses.
6.

Consequences of Not Conducting Collection

Less frequent information collection would be incompatible with the objectives of rule
38a-1. The annual reviews required under rule 38a-1 are integral to detecting and correcting any
gaps in the program before irrevocable or widespread harm is inflicted upon investors, and
extending the time between reviews increases the likelihood that such harm could go unchecked.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Rule 38a-1 requires funds and advisers to maintain their internal compliance policies and
procedures and documents related to the annual review of those policies and procedures for at
least five years. Although this period exceeds the three-year guideline for most kinds of records
under 5 CFR 1320.5(d)(2)(iv), the staff believes that this is warranted because the rule

3

contributes to the effectiveness of the Commission’s examination and inspection program.
Because the period between examinations may be as long as five years, it is important that the
Commission have access to records that cover the entire period between examinations.
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information
requirements in rule 38a-1 before it submitted this request for extension and approval to the
Office of Management and Budget. The Commission received no comments in response to this
request. In addition, the Commission and the staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the investment company industry
through public conferences, meetings, and informal exchanges. These forums provide the
Commission and the staff with a means of ascertaining and acting upon paperwork burdens
confronting the industry.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Confidentiality

If information collected pursuant to rule 38a-1 is reviewed by the Commission’s
examination staff, it will be accorded the same level of confidentiality accorded to other
responses provided to the Commission in the context of its examination and oversight program.
11.

Sensitive Questions

No information of a sensitive nature is required under this collection of information. The
information collection does not collect personally identifiable information (PII).

4

12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act of 1995 and are not derived from a comprehensive or even
representative survey or study of the costs of Commission rules. In our most recent Paperwork
Reduction Act submission for rule 38a-1, we estimated for rule 38a-1 a total hour burden of
451,408 hours, at a time cost of $304,384,500, and external burden costs of $19,608,000.
Compliance with rule 38a-1 is mandatory for funds.

5

Table 1 below summarizes our current PRA estimates.
TABLE 1: RULE 38A-1 PRA ESTIMATES
Internal
annual
burden hours

Wage rate1

Internal time costs

Annual external
cost burden

$23,850

$1,7522

$2,100

$0

$546

25 hours
Policies and procedures
requirements

5 hours

(blended rate for
compliance
attorney,
assistant general
counsel, and
Chief Compliance
Officer)
$4,770 (Board of
Directors as a
whole)3
$420
(blended rate for
compliance
attorney and
senior
programmer)

Recordkeeping requirements

5 hours

Total annual burden per fund

35 hours

$39,600

$1,752

Number of affected funds

× 13,628

× 13,628

× 13,628

Total annual burden

476,980
hours

$539,668,800

$23,876,256

Notes:
1. The Commission’s estimates of the relevant wage rates are based on the salary information for the securities industry compiled by
Securities Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013, as modified by Commission
staff for 2024 (“SIFMA Wage Report.”) The estimated figures are modified by firm size, employee benefits, overhead, and adjusted to
account for the effects of inflation. The $501 wage rate reflects current estimates from the SIFMA Wage Report of the blended hourly
rate for a compliance attorney ($440), an assistant general counsel ($561), and Chief Compliance Officer ($638). ($440 + $561 +
$638) / 3 = $546. The $420 wage rate reflects current estimates from the SIFMA Wage Report of the blended hourly rate for a
compliance attorney ($440) and a senior programmer ($399). ($440 + $399) / 2 = $420.
2. This estimated burden is based on the estimated wage rate of $584/hour, for 3 hours, for outside legal services. The Commission’s
estimates of the relevant wage rates for external time costs, such as outside legal services, take into account staff experience, a variety
of sources including general information websites, and adjustments for inflation.
3. This wage rate is not from the SIFMA Wage Report but is a staff estimate. It is a combined cost for the entire board (not a per board
member cost). This estimate assumes an average of 9 board members per board.

6

13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to comply with rule 38a-1, such
as legal and accounting services. The cost burden does not include the hour burden discussed in
Item 12 above. As outlined in the table above, we estimate the total external cost burden to
comply with rule 38a-1 to be $23,876,256.
14.

Cost to the Federal Government

Rule 38a-1 does not impose a cost on the federal government. Rule 38a-1 does not
require funds to file any documents with the Commission. However, the Commission staff may
records produced pursuant to the rule in order to assist the Commission in carrying out its
examination and oversight program.
15.

Change in Burden

The estimated total annual burden hours has increased as follows.
Table 1: Summary of Revised Annual Responses, Burden Hours, and Cost Estimates
IC Title
Rule 38a-1

Annual Time Burden (Hrs.)
Previously
Requested
Change
approved
451,408
476,980
25,572

External Cost to Respondents ($)
Previously
Requested
Change
approved
$19,608,000
$23,876,256
$4,268,256

We have revised the estimates to reflect changes in the number of affected entities and in
the external cost associated with the information collection requirements. These changes reflect
revised estimates and burdens attributable to requirements under the rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.

7

18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

8