Add securities lending to the list of things on the Securities and Exchange Commission's radar screen.
"When we looked into market timing and late trading, we saw to an extent that we had never seen before how advisers would breach their fiduciary duty to clients," said Kevin W. Goodman, Los Angeles-based assistant regional director of the SEC. At a securities lending conference in February, Mr. Goodman outlined the commission's focus on securities lending.
In its examination of mutual fund market timing and late trading, the SEC found that advisers "blatantly put their interests above those of mutual fund shareholders," Mr. Goodman said in an interview. "That raises the likelihood that a similar breach could happen in the securities lending area."
Mutual funds are big lenders of securities.
Mr. Goodman emphasized that the focus was on securities lending in the mutual fund world, which the commission regulates, but plan sponsors that lend securities also need to be on guard, particularly regarding their relationships with lending agents, custodians and investment managers.
Robert A. Wittie, a partner in the Washington office of Kirkpatrick & Lockhart Nicholson Graham LLP, heard Mr. Goodman's speech at the conference and was somewhat surprised by the new focus.
"As far as the application to pension funds, it's not an area I think on which the SEC has been highly focused in the past," he said. Mr. Wittie concentrates on financial transactions and the regulation of investment companies and financial institutions.
"But in light of their recent experience, the SEC views any place where there is a significant amount of money changing hands as something worthy of their more considered attention than perhaps had been given in the past," Mr. Wittie added. "They seem to have concluded that (securities lending) is an activity they hadn't thought had much potential for a problem but now think it is one that may have potential for problems."