| FSA calls for hedge fund regulation debate |
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| 22/08/2002 | |
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by Nat Mankelow The Financial Services Authority (FSA) has published a discussion paper on how its regulatory regime bears on the UK activities of hedge funds. The paper – Hedge Funds and the FSA – asks for comments on the current controls on the selling and marketing of hedge funds in the UK, the regulation of fund managers who manage offshore hedge funds, and the FSA's approach to monitoring the effects of hedge funds on UK markets. Michael Folger, FSA's director of conduct of business standards, said: "The hedge fund market has grown significantly in recent years, as increasing numbers of wealthy investors and trusts have decided to place a proportion of their portfolio in 'alternative' investments. Just as some of our international counterparts have also done recently, we are therefore reviewing our regulatory regime in respect of hedge fund activities in the UK, particularly the sale and marketing of such funds". Folger said he wanted the FSA to have an open mind when dealing with the opaque hedge fund market. He said: "Hedge funds cannot readily market themselves direct to the UK public, and ordinary investors generally do not seem to have become involved. But financial advisers may recommend investors who understand the risks to put some money in them as part of a diversified portfolio. Is this the right balance, or is there scope to make hedge funds more accessible?" The FSA is seeking views from industry and consumer groups on whether it should change the rules on the sale and marketing of hedge funds, "to make them more readily accessible". The FSA says this could potentially increase the product choice available to investors, but it also raises significant consumer protection and education issues, "which would have to be addressed satisfactorily before any changes were made". Michael Folger added: "Although hedge funds are usually incorporated and governed in offshore jurisdictions, mainly for tax reasons, many employ fund managers onshore. The UK-based fund managers providing services to hedge funds are legally required to seek authorisation from the FSA. Our powers under the Financial Services and Markets Act cover the activities of such a firm and the services it has contracted to provide its clients. "But, if a UK-authorised fund manager is engaged by an offshore hedge fund that brings no FSA oversight of the fund itself or its risk profile. Recognising that, we are explaining our approach to regulating UK-based hedge fund managers and invite comments." The FSA is also looking at its approach to monitoring the effects of hedge fund activities on UK markets. "We have regular dialogue with market participants so that we maintain up-to-date knowledge of the hedge fund sector. As users of the UK-based securities markets, they are of course subject to the same market standards as similar institutional investors," said Folger. |
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