The new US president already has a headache in the tainted reputation of the Securities and Exchange Commission. If the reputation of the country's securities regulation is not restored, Barack Obama risks seeing his own image damaged.

Some critics even question whether the agency has a future, with speculation rife that new chairman Mary Schapiro may be given the job of merging it with the Commodity Futures Trading commission (which she headed in the 1990s under Bill Clinton).

Over the past year the SEC has been assailed over its failure to notice Bernard Madoff's alleged USD50bn Ponzi scheme as well as over its failure to rein in the faulty risk modelling and excessive leverage that led to the collapse of investment banks such as Lehman Brothers and Bear Stearns.

Yesterday Harry Markopolos, a former investment manager, testified to Congress that the SEC staff were neither willing nor able to uncover what Madoff was really doing, despite repeated efforts by Markopolos to bring it to their attention.

If the SEC is to survive, changes need to be made, and fast. It will take more than new registration requirements for hedge funds to satisfy the agency's many critics that it has learned the lessons from past failures and is capable of protecting the financial industry and investors from fraud and recklessness.