The big question facing Canadian mutual fund companies is how the scandal rocking the U.S. industry will affect investors here, industry observers say.

Canadians have entrusted nearly $425-billion to the country's mutual fund managers. But the trading abuses uncovered in the United States once again raise questions about governance and who is watching over the managers.

[...]

The lack of independent governing bodies in Canada to oversee mutual fund managers makes it more difficult to monitor their operations, Mr. Erlichman said. He recommended in a report in 2000 that funds be required to have compliance plans and that managers answer to an independent group of advisers.

While Canadian regulators have yet to adopt such proposals, their counterparts in the United States last month introduced rules requiring investment advisers to implement compliance plans. U.S. mutual funds are already required to report to a board of directors.

...