FSA Launches Debate on the Impact of Hedge Funds in the UK

The UK’s Financial Services Authority (FSA) has published a discussion paper on hedge funds – Hedge Funds: A Discussion of Risk and Regulatory Engagement. While the FSA says it views hedge funds as a growing and beneficial component of the financial system it is aware that they pose risks to the FSA’s statutory objectives, and it is these that the FSA hopes to identify in its discussion paper. The paper sets out current and potential future mitigating actions. Reflecting the growth in importance of hedge funds, the FSA has already increased its engagement with the industry and, in the last 12 months in particular, has increased data collection both from prime brokers and, to a lesser extent, hedge funds. It has also engaged in increased proactive market surveillance. Going forward, the FSA says it is establishing a dedicated centre of hedge fund expertise and will continue to develop a more proactive supervisory relationship with high impact firms. The paper, however, seeks views on further actions the FSA could take in a proportionate manner to increase regulatory transparency and thus improve the effectiveness of its regulatory engagement. In particular it seeks views on the costs and benefits of the FSA requiring the industry to provide it with certain additional data.

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