SEC Seeks to Boost Fund Oversight

Internal controls within mutual fund companies would be tightened under new rules proposed Tuesday by federal securities regulators, who also opened to public review the idea of creating a self-policing organization for the fund industry.

The vote by the five members of the Securities and Exchange Commission closely followed their move Jan. 23, over industry objections, to force mutual funds to tell investors how they voted on decisions at the companies whose shares they hold.

Shareholder advocates have said tighter compliance rules for mutual funds are long overdue. Opponents maintain that most large mutual funds already have systems and procedures in place to ensure compliance with securities laws.

“Today’s action by the SEC to address the need for better regulation of the mutual fund industry ... is an important step in the ongoing effort to protect America’s investors,” said Rep. Michael G. Oxley, the Ohio Republican who chairs the House Financial Services Committee.

Under the plan, which probably will be formally adopted by the SEC after a 60-day public comment period, mutual fund companies would be required to have policies and procedures to ensure compliance with securities laws and to appoint chief compliance officers.

Responding to last year’s wave of corporate scandals and Congress’ order to bring out new rules, the SEC in recent weeks has tightened regulation of the accounting industry and corporations. It also is focusing on the $6-trillion mutual fund industry -- with 93 million Americans invested in U.S. stock funds -- as a field for possible stricter regulation.

The head of the mutual fund industry’s trade group said it continued to oppose the idea of a self-policing arm along the lines of the NASD, formerly the National Assn. of Securities Dealers, which oversees brokers and dealers.

“We remain deeply skeptical that developing an organization requiring mutual funds to assume significant responsibility for regulating themselves is wise or necessary,” said Matthew Fink, president of the Investment Company Institute.

Two SEC members also expressed skepticism about the need for such a self-regulatory organization, especially with Congress poised to increase the agency’s budget.

“In a world where we are going to have enhanced resources,” Commissioner Harvey Goldschmid said, “we ought to be doing as much of these things as we can.” Commissioner Paul Atkins expressed similar views.

Outgoing SEC Chairman Harvey L. Pitt said that such a body would not replace the commission in its inspection of mutual fund companies but would provide “another set of eyes and ears on the premises.”

The SEC approved another rule Tuesday that would simplify and update federal standards governing use of U.S. securities depositories by funds and advisors.

Most stocks and bonds are held with depositories, which play a key role in the clearance and settlement of securities transactions.