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March 14, 2006
Regulators take contrary views on hedge funds
There appears to be a diverging approach to the regulation and development of hedge funds as domestic regulators like the Hong Kong Securities and Futures Commission and the Financial Services Authority (FSA) in the UK are considering the retailisation of this popular financial product, and making it available to more consumers, while the international bodies such as IOSCO are lobbying for increasing oversight because of the reported perceived risks.
The Head of Investment and Securities at the Cayman Islands Monetary Authority (CIMA) said one of the reasons for this contradictory position is the varying definitions of hedge funds.
“I would suggest that before we as regulators and standard setters can conclude on whether further oversight of hedge funds is required it would be important to settle on a commonly accepted definition of hedge funds,” said Mr Linford.
“In the absence of such a definition it is difficult to see how the real or potential risks posed by the hedge funds can be properly identified and mitigated against using regulatory tools.”
He added the problem is compounded by news media and some public officials, who have reported that by nature, hedge funds are susceptible to fraud, money laundering and tax evasion.
That is why CIMA accepts numerous speaking engagements to participate in discussions regarding enhanced regulation of hedge funds.
Mr Linford explained that a recent FSA discussion paper on consumer protection noted that it does not currently see significant risks to UK retail consumers from the hedge funds industry. Partly, because there is very few direct retail investor participation and indirect exposure through pension and traditional investment management vehicles is a reflection of investment diversification.
“The Cayman Islands authorities are taking further steps to mitigate the risks posed by the growth in hedge funds by seeking to clearly distinguish between private and public funds, by proposals to raise the level of minimum investments in private professional funds to ensure that only sophisticated persons invest in these vehicles, and by proposals to require appropriate disclosure on the level of regulation of private funds so that potential investors are alerted to the level of oversight involved,” he said.
He added the Government is increasing the Authority’s budget so it is able to hire more staff to keep up with the increasing oversight demands.
Furthermore, the Authority is implementing E-reporting, which will also serve to enhance the oversight tools available and provide better statistical data on the size and capital flows related to hedge funds.
Mr Linford added that if it is ultimately determined that new international standards are necessary in hedge funds - offshore jurisdictions like Cayman, will take steps to make sure that any new standards will be carried out on a level playing field basis. Especially since Cayman already has higher standards than some onshore jurisdictions.
-Net News-
Posted by su at March 14, 2006 9:55 AM