Analysis: The Obama administration needs to move quickly on a promised shake-up of the Securities and Exchange Commission after the US financial watchdog failed to spot the illegal activities of jailed fraudster Bernie Madoff.

The Obama administration needs to move quickly on a promised shake-up of the Securities and Exchange Commission after the US financial watchdog failed to spot the illegal activities of jailed fraudster Bernie Madoff - a scandal that has dented confidence in the investment industry.

The SEC has already increased regulations on money market funds. The agency seeks to require that money market funds hold more liquid assets. This will allow them to sell their holdings quickly in case of sudden withdrawals, thus protecting the value of investments in money market funds.

The president has appointed Mary Schapiro as head of the SEC with a mandate to beef up the agency's regulations. One of her first steps was to prohibit employees from trading securities in companies the SEC is investigating.

A big part of Barack Obama's campaign was increased regulations to restore confidence in the financial sector. Unregulated use of derivatives caused the bubble and subsequent bust that led to the current recession. The SEC had been severely criticised for missing the Madoff Ponzi scheme.

The Madoff scandal, which is still unravelling, highlights the failure of US regulators. Madoff's victims, many of whom have lost millions of dollars, want the SEC to tighten up procedures after it had been tipped off about the fraudster's scams but did nothing to protect investors including many in the UK and other parts of Europe.

The former New York financier will spend the rest of his days in a prison after being sentenced to 150 years in jail - six times the penalty given the convicted chief executives of Enron and WorldCom - for a massive fraud which affected thousands of investors.

In court, the 71-year-old defendant apologised to the victims of his $65bn (£40bn) Ponzi scheme, but acknowledged that would not help the many investors who lost their life savings.

Victims of the biggest investment fraud in US history have welcomed the jail sentence but some expressed mixed feelings about the latest chapter in the Madoff saga, saying they're now more angry at the government than at Madoff. One of the victims, Judith Welling, said the regulator, the SEC, has to answer for its role in the case.

"I think the SEC certainly should have been up there (on trial)," she told the ABC TV network.

"They're even more responsible than he is because they never stopped it, never checked it, never did their job.

"And that's government, that's the American government. So how could anyone invest in this country, on Wall Street today, and feel confident that their investment is secure?"

Mariam Siegman, who testified at Madoff's hearing on Monday, said the regulators and legislators who called for deregulation of the financial system were Madoff's "enablers", and said his sentencing will not change things "If the American public is satisfied with this sentence and think it's going to protect them, then God help them," Siegman said. "The important thing is that the American public and the general public understand that this will happen again and again."

In recent months the SEC has announced changes aimed at making it easier to detect and root out fraud before it approaches such a massive scale.

But a senior business lawyer based in Houston, Tom Ajamie, said regulators who failed to pick up on the Madoff fraud should face stiff penalties.

"(It was) complete and utter incompetence by the United States Securities and Exchange Commission," he said.

"Take this back to the beginning. Don't forget Madoff himself has admitted he didn't trade a single stock for well over a decade. On his supposed trading floor, there are a couple of computers, some that didn't even work.

"So this is complete failure by the Securities and Exchange Commission.

"People should be fired and that agency needs to throw out a bunch of their investigators and bring in people who actually know what they're doing and know how to investigate a fraud."

It is the US system as a whole that is to blame, rather than any individual regulators, said corporate governance expert Stephen Bartos. He pointed to a culture of loose regulation that has flourished in America. He also blamed inadequate laws.

"The regulators can only do what they can within the framework of the law and as much as anything it's the legislators that have been to blame in this," he said.

"That's why the Obama administration I think is looking to change the legislative framework around corporate regulation in the United States."

Bartos said the Australian Securities and Investments Commission (ASIC) offers a good model for US regulators.

"I think Australia's approach to corporate regulation has some useful lessons, in that our banking regulation and our corporate regulation through ASIC has been extremely effective in terms of managing our markets here," he said.

Top SEC officials met this week to discuss new rules that would require companies to disclose information about directors' skills and experience on issues from executive pay to accounting rules. The agency is acting after boards at Bank of America, the biggest US bank by assets, and Countrywide Financial Corporation failed to rein in lending that contributed to the global financial crisis.

This is a problem that has to be cleaned up because some US banks have put retired military officers and athletes on their boards - people who know little or nothing about how a big corporation operates. Tour de France champion Lance Armstrong, who was on the board of Morgans Hotel Group, is a case in point. He earned more than $70,000 but missed 11 board meetings and quit in 2007.

"What the SEC wants to do is prompt companies to make sure they're appointing directors who can do the job and not just look pretty on a roster," said Stephen Davis, a senior fellow at the Yale School of Management.