Mr William Donaldson, the chairman of the Securities and Exchange Commission, yesterday called on those working in the US financial services industry to "re- examine how they do business" to prevent future regulatory abuses.
In a tough speech at the Securities Industry Association annual meeting, Mr Donaldson said the "Pandora's box of abuses in the securities industry" opened in the past couple of years underlined the need for a new commitment to ethical business practices.
"Companies and managers and employees from top to bottom must embrace a spirit of integrity that goes well beyond simple adherence to the letter of the law."
To achieve this "transformation" of the industry, the SEC also had to adapt to the new business climate, he said. This meant working more closely with the industry not just to prosecute misconduct but also to prevent it from occurring. But he warned firms not to use the regulator's new attempt at co-operation to "hide or excuse violations".
Mr Donaldson's comments came amid speculation about how long he would stay at the helm of the SEC following President Bush's re-election.
Mr Donaldson, who was appointed by Mr Bush, has proved a much tougher reformer than many expected and has backed several measures that were strongly opposed by business.
On a number of controversial issues he has sided with the two Democratic commissioners against his two fellow Republicans. Mr Bush's re-election has prompted speculation that if Mr Donaldson decided to step down he could be replaced with someone more conciliatory.
In his speech, Mr Donaldson made no attempt to tone down his rhetoric and referred to a number of the most heated issues on the SEC's agenda.
These include the proposal to allow unhappy shareholders to nominate their own company directors. Mr Donaldson has softened his original support for the plan amid lack of support from other commissioners, and there have been suggestions that the idea could quietly be dropped.
However, yesterday he said the SEC would "continue to study how we can bring balanced reform to the proxy process". He also referred to the recent decision to require registration of hedge funds, which was opposed by the other Republican commissioners.
