The Securities and Exchange Commission is inviting the U.S. securities industry to join with the regulators to grapple with the competitive and regulatory challenges facing the securities industry.

In a speech at the Securities Industry Association annual meeting in Boca Raton today, SEC chairman William Donaldson suggested that, over the past two years, the SEC has “engaged in a broader agenda than at any other time in the history of the commission,” in response to a succession of industry scandals.

“I am now more convinced than ever that it is imperative for everyone in the securities industry – whether in investment banking, brokerage, venture capital, private investment, or mutual funds – to re-examine how they do business,” he said. “I might add that the SEC must be included in the “rethink” of traditional practices.”

Donaldson said that both industry and regulators need to take account of trends such as: the breakdown in investor confidence, borderless global securities markets, and the proliferation of new investment technology, and its impact on new financial instruments and trading activities. “These and other phenomena need to be incorporated into operating procedures in a way that benefits investors, but does so while also mandating that honesty and integrity are embedded in the DNA of your companies,” he said.

“These objectives won’t be realized by having each company simply adopt a “politically correct” written code of ethics,” he cautioned. “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. What’s really needed is a commitment to be guided by a moral compass.”

From the SEC’s side, he said the regulator must pursue more sophisticated, and more complex, forms of malfeasance. And, he reported that it’s contemplating reform of self-regulatory organizations, noting that it will soon be considering new proposals to improve the governance and financial transparency of all self-regulatory organizations. He also said that the SEC will shortly issue a concept release about the future of self-regulation.

Donaldson said that the SEC intends to identify areas where industry goals can align with its goals. “On your side, you must demonstrate your good faith to help us and your firms to prevent future securities law violations. You must demonstrate this good faith in your inculcation of a culture of ethics and compliance in your firm. Above all, you must not use this new attempt at cooperation to hide or excuse violations.”