WASHINGTON -- The Investment Company Institute and its membership are at a crossroads, said Paul Roye, the Securities and Exchange Commission's director of the division of investment management before the ICI General Membership Meeting here Thursday.

"The final chapters of the mutual fund scandal are yet to be written," Roye said. "The jury is still out on how the industry reacted. You will be judged by your actions." The big question, he said, is will the fund industry rise to the occasion and take advantage of this historic opportunity to protect shareholders' interests or will it be bogged down by an element resisting change within the industry?

The events of the last eight months should surely serve as a "wake-up call" for the industry, Roye said. However, recent "astounding" comment letters the Commission has received in response to requiring greater individual transaction transparency in omnibus accounts as well as continued barbs about the proposal to require an independent chairman of fund boards illustrate the opposite mindset, Roye said. It's this resistance to regulatory reform that got firms into trouble in the first place, he noted.

"Will the industry learn from past mistakes and take serious steps to regain its reputation as an industry of integrity?" Roye asked. "Or, will this tumultuous period in the fund industry's history be marked by lots of hot air that resulted in little real change and a back-to-business as usual attitude, and the triumph of self interest rather than the greater good of investors' best interests."

When regulators at the Commission read some of the comment letters opposing new rules and the rationale for those positions, they wonder whether the authors are arguing against reform as yet another way to shirk responsibility and accountability, he noted. Roye said he wants to be sure the industry is not just paying lip service to regulators, investors and the press.

"The industry needs to embrace the spirit of reform if true change is to happen," Roye said. In the last year, regulators have taken action against nearly half of the top 25 fund firms, and the Commission is still continuing its broad-based investigation. In the eight months since timing and other problems were first unveiled, the Commission has come out with 16 rulemaking proposals.

However, regulation is not the only key, Roye said, in a markedly different tone from that used during his cautionary, yet guarded speech at this very same meeting one year ago. "The responsibility for reforming the industry does not lay on the Commission alone." The "moral DNA" of firms needs to be firmly in place and there needs to be an effort to change, reassess and rebuild investor confidence.

And despite individual firms' innocence or guilt, and some gaining assets as a result of others' wrongdoing, the scandal is an industry wide problem, one that hurts everyone involved, he said. "No one is truly a winner because of recent events. The fund industry will have to work long and hard to regain investor trust."

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