FSA rejects calls for more hedge fund regulation

05/11/2008

The FSA has rejected calls for greater regulation of the hedge fund industry, saying that more effective regulation, rather than more regulation, is the goal.

CEO of the FSA, Hector Sants, spoke at the Hedge 2008 Conference and sought to allay the fears of an industry that has come under increasing criticism in the wake of recent events in the global financial markets. Despite predictions over the past decade that hedge fund activities would be at the centre of the next financial crisis, Mr Sants said that has not been the case. While noting that hedge funds had, in general, weathered the market turmoil fairly well, he warned that increased volatility and tight credit markets presented a greater challenge for fund managers.

Mr Sants stated that fund managers should be planning for the possibility of a sudden fall in funds under management and key man risks, as well as the impact of forced liquidations.

He went on to highlight three areas that the FSA was focusing on in respect of hedge funds:

  • Valuations - There is a need to review valuation policies in light of the change in market conditions, and disclose any changes to investors. The FSA was very weary of the pressure on managers to provide overstated valuations and the risk of mis-marking frauds being perpetrated.

  • CFDs - The FSA emphasised the need to comply with the its new policy in relation to the disclosure of aggregated positions of shares and CFDs above the 3% threshold.

  • Market integrity - Increasing volatility in markets provide a greater opportunity and incentive for market abuse in the form of rumours, not just in relation to hedge funds.

    • http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2008/1022_hs.shtml

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