Flurry of Mutual-Fund Laws on the Way
Washington -- CONGRESS, RESPONDING TO the mutual-fund trading scandal, is revving plans into high gear for the most extensive new regulation of the fund business in more than 60 years.</br></br>At a hearing yesterday, the Senate Banking Committee discussed plans to introduce -- likely early next year -- broad legislation that could raise criminal penalties for rule violations, increase board controls and require more disclosure of fees. It also will consider creating a mutual-fund oversight board similar to the new accounting board Congress set up to oversee auditors in the wake of recent corporate accounting scandals.</br></br>Securities and Exchange Commission Chairman William Donaldson, testifying at the hearing, acknowledged his agency was slow to spot and react to mutual-fund problems, and he pledged to speed up consideration of new SEC rules to strengthen investor protections, including steps that would inhibit market timing and effectively eliminate "late trading" of mutual-fund shares.</br></br>Meanwhile in the House, Rep. Michael Oxley (R., Ohio), chairman of the Financial Services Committee, said the full House is expected to vote today on a mutual-fund bill introduced by his panel. "He's confident he has the votes of two-thirds of the members," which is necessary to pass the legislation, said Peggy Peterson, Mr. Oxley's deputy staff director.</br></br>The bill had been stalled after passing the committee in July, but has gained momentum after state and federal regulators recently uncovered abuses. Passage of the bill is expected to spur the Senate to act on similar legislation to eliminate abusive trading practices in the $7 trillion fund industry. The House version would provide investors more fee information, strengthen director oversight of brokerage-fee arrangements and mandate that boards have two-thirds independent directors.