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Corporate Governance

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corporate goverance

I. Introduction

Thank you and good morning. It's a pleasure to be here with all of you today to discuss the regulation of mutual funds in the United States. In my view, the regulatory scheme governing investment companies is one of the most important areas of the U.S. securities laws. This is because of the tremendous size of the industry that it regulates and the importance of the U.S. fund industry to the financial health of millions of Americ

V. Role of SEC Offices and Divisions

My Division of the SEC, the Division of Investment Management, is responsible for administering and interpreting the provisions of the Investment Company Act. However, we are greatly assisted in efforts to protect investment company investors through the efforts of other Offices and Divisions of the SEC, particularly our Office of Compliance, Inspections and Examinations, the Office of Investor Education and Assistance, and the Division of Enforcement.

A. Office of Compliance, Inspections and Examinations

Our Office of Compliance, Inspections and Examinations conducts the SEC's examination program of investment companies and investment advisers. They conduct inspections to foster compliance with the securities laws, to detect violations of those laws, and to keep the SEC informed of developments in the investment management industry. One of the most important objectives of this program is the quick and informal correction of compliance problems. Violations that appear too serious for informal correction are referred to our Division of Enforcement.

B. Division of Enforcement

Our Division of Enforcement investigates possible violations of the securities laws and, when appropriate, recommends that the SEC file enforcement actions, either in a U.S. federal court or in an administrative proceeding. While the SEC has civil enforcement authority only, we work closely with various criminal law enforcement agencies throughout the country to develop and bring criminal cases when the violations warrant. SEC enforcement actions serve as a significant deterrent to those who would consider violating the securities laws, since the SEC can seek injunctions, cease and desist orders, suspension or revocation of licenses, bars from association with the industry, and monetary penalties.

C. Office of Investor Education and Assistance

Our Chairman, Arthur Levitt, firmly believes that the best defense against fraud and abusive practices is educated investors. Therefore, educational initiatives have been hallmarks of his tenure. To help educate investors about the securities markets generally, the SEC has established the Office of Investor Education and Assistance whose mission includes developing educational programs that will enable investors to better protect themselves and make wiser investment decisions. This office has produced brochures on a variety of topics and posted material on the SEC's website including materials designed to educate mutual fund investors. The SEC has also organized investor and small business town meetings where the public can address questions to the Commissioners and SEC staff.

Since this conference is focused on the internet, I should note that while the internet has brought significant benefits to investors, it has also created significant dangers for the unwary. The internet has helped bring millions of relatively novice participants to the markets, while also providing a mechanism for unscrupulous persons to defraud those participants. As of the end of this year's first quarter, the SEC has filed approximately 120 internet-related enforcement actions. Our Office of Investor Education and Assistance has responded by educating investors about the basics of sound investing so that they can navigate through the maze of information on the web.

Accordingly, through investor education, a comprehensive inspection program, prudent administration and interpretation of our securities laws and aggressive enforcement action when necessary, we have been able to maintain effective oversight of the U.S. mutual industry.

VI. Role of the Investment Company Industry

While I have described the SEC's role in protecting investment company shareholders, I would be remiss if I did not mention the important role the U.S. investment management industry plays in maintaining the confidence that U.S. investors have in the industry. The SEC working with the industry has helped keep mutual funds in the U.S. free from major scandal and contributed to the confidence that investors have in the industry. The U.S. mutual fund industry has for at least 60 years supported laws and regulations designed to protect fund investors. The industry has also supported and developed tough voluntary standards that go beyond the requirements of the law, such as the Investment Company Institute's recommended best practices on personal investing and the role of mutual fund directors.

As a regulator, I know that we cannot legislate honesty and integrity. Without the commitment of the U.S. investment management industry to the maintenance of high fiduciary standards, we would not have the sustained growth and record of integrity that the industry has experienced. I am sure that the success of the investment management industry in Europe is due, in large measure, to a similar commitment on your part.

VII. Current Initiatives and Concerns

While the basic structure of the Investment Company Act has served investors well, we at the SEC are currently in the midst of several significant initiatives designed to further its goal of investor protection, while keeping it apace with the rapid evolution of the financial products and services that the statute regulates.

The financial services industry is in the midst of a technological revolution and mutual funds are at the forefront. The SEC faces the formidable challenge of applying the existing regulatory framework that has helped ensure the integrity of the industry, while at the same time providing a regulatory scheme to keep pace with the increased competition and technological revolution underway in the securities markets. We currently are in the midst of several regulatory initiatives aimed at promoting the integrity of fund governance, enhancing and improving disclosures made to investors, and modernizing the regulatory structure to accommodate the increased competitiveness and globalization of the investment management industry.




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