Speaking before the
These new regulations are necessary to "minimize the possibility" that trading and sales abuses in the mutual fund industry could occur again, Donaldson said.
He noted that the SEC has adopted 10 reforms already strengthening governance, compliance, conflicts of interest and market timing, and that in the coming months, the Commission plans to complete the remaining few in the areas of late trading and fee disclosure.
Of all of the reforms the SEC has brought thus far, the independent chairman rule is probably one of the two most significant, Donaldson said, since "there are times when the executive's duties to the management company and its shareholders simply conflict with what is in the best interest of fund executives. This is the case, for instance, when fund boards review many of the transactions permitted by our exemptive rules."
A second critical new requirement, Donaldson continued, is the chief compliance officer. "We believe that making these changes to the mutual fund compliance infrastructure, and the increased focus on compliance that comes from the new chief compliance officer requirement, will help to minimize the kinds of compliance weaknesses that led to the mutual fund scandals."
In answer to the resistance from the industry and its retirement plan and brokerage clients to the hard 4:00 rule, Donaldson said the SEC is considering a tamper-proof time stamp, sequencing of trades or a third-party auditor. Because of the complexity of these technological solutions, he continued, the SEC will not rule on a solution to the late trading issue until mid 2005.
