[...] 'The scandals show the need to reform the fund industry,' said Roye, head of the SEC's Division of Investment Management. The $7.6 trillion industry must refocus on establishing its integrity, he said.

Quoting the SEC's chairman William Donaldson, Roye said, 'Each fund company must examine its moral DNA.'

Fund companies must reform themselves, then reassure shareholders and restore their confidence, he added.

Roye said the SEC has begun 16 separate reforms for the fund industry since September 2003, when New York Attorney General Eliot Spitzer exposed abusive fund trading practices.

[...] The SEC proposal to require chairman of fund boards of directors to be independent is among its most controversial, Roye said.

But Roye reiterated the SEC's interest in requiring chairmen to be independent of management companies. For one thing, independent chairmen can more effectively block improper conduct by a fund manager, he said. That's because they would not share any potential conflicts of interest a manager might have in taking risks in pursuit of short-term returns.

Independent chairman also would not be caught up in such conflicts as those that can arise in fee negotiations between a fund and its management company.

[...]

[CLB: This is the standard practice of "Separation of Duties," something any decision making body ought to engage in.]