Mutual fund industry faces self-policing switch

By Marcy Gordon
Associated Press

WASHINGTON — Federal regulators will consider new rules to tighten internal controls within mutual fund companies and will open to public review the idea of creating a self-policing organization for the industry.

News of the planned actions by the Securities and Exchange Commission came less than a week after the agency voted, over industry objections, to compel mutual funds to tell investors how they voted on decisions at the companies whose shares they hold.

The SEC also said it will vote on adopting a rule requiring stock analysts to certify that their research reports reflect their personal views and that they were not paid by the companies they evaluated.

Wall Street analysts have been roundly criticized by regulators and lawmakers for promoting stocks of companies for whom their firms do investment-banking business. Several prominent analysts are under investigation for possible insider trading and other violations.

Responding to last year's wave of corporate scandals and Congress' order to adopt new rules, the SEC has focused on tightening regulation of the accounting industry and corporations. Now it is turning to the $6 trillion mutual fund industry — with 93 million Americans invested in U.S. stock funds — as a field for possible stricter regulation.

The SEC said it was putting the new issues on the agenda for a public meeting of its five commissioners on Tuesday.

Regarding new SEC rules for internal controls, industry experts have said most large mutual funds already have systems and procedures in place to ensure compliance with securities laws.

However, Mercer Bullar, the founder of the shareholder advocacy firm Fund Democracy, said the SEC proposal is "long, long overdue."

The mutual fund industry has opposed the idea of a self-policing arm — such as what's in place for the brokerage industry. It wasn't immediately clear how such a body would operate along with the SEC, which regulates and inspects mutual fund companies.

The SEC move appeared to take the mutual fund industry by surprise.

"The fund industry supports strong regulation in the interest of mutual fund shareholders," said John Collins, a spokesman for the Investment Company Institute, the industry's lobbying group. "The fund industry will carefully consider the SEC's proposals."