Congressional Momentum Gathers Behind Mutual Fund Reforms

by Philip Morton, Investors Offshore.com

05 November 2003

According to reports in the US media, momentum is building in Congress for legislative action to deal with the reform of the mutual fund industry, in the wake of the recent marketing timing scandal uncovered by New York attorney general, Eliot Spitzer.

With lawmakers reportedly tiring of waiting for the Securities and Exchange Commission (SEC) to act over this and other illegal investment practices taking place within the $7 trillion industry, support is said to be growing for a reform bill put forward by Representative Richard Baker (R-Baton Rouge).

Rep. Baker's proposals have received approval at committee level, but have been stalled since July by opposition from the mutual fund industry.

The reform bill would require funds to reveal more about their management fees, the compensation received by their managers, portfolio turnover rates, and commission rates.

Additionally, fund advisers would be obliged to report annually to fund directors with regard to some of the transactions upon which they have advised, two thirds of mutual fund directors would need to be independent, and the audit committees of investment companies would receive more powers.

The SEC this week announced that it is "aggressively following up" on information received during a survey of the US's 88 largest mutual fund companies, and announced that funds and fund managers which are found to have engaged in market timing, late trading, or self-dealing practices "will be identified and will be held fully accountable".

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