INTERNATIONAL: IOSCO publishes report on Hedge Fund Oversight

Monday June 22 2009

The International Organization of Securities Commissions ` (IOSCO) Technical Committee has today published afinal report on Hedge fund oversight – http://www.iosco.org/library/pubdocs/pdf/IOSCOPD293.pdf

The report which was prepared by the Task Force on Unregulated Entities (Task Force) contains six high level principles that will enable securities regulators to address, in a collective and effective way, the regulatory and systemic risks posed by hedge funds in their own jurisdictions while supporting a globally consistent approach.

The Task Force recommends that all securities regulators apply the principles in their regulatory approaches.

The six high level principles are:

* Hedge funds and/or hedge fund managers/advisers should be subject to mandatory registration;

* Hedge fund managers/advisers which are required to register should also be subject to appropriate ongoing regulatory requirements relating to:

* Organisational and operational standards;

* Conflicts of interest and other conduct of business rules;

* Disclosure to investors; and

* Prudential regulation.

* Prime brokers and banks which provide funding to hedge funds should be subject to mandatory registration/regulation and supervision. They should have in place appropriate risk management * Hedge fund managers/advisers and prime brokers should provide to the relevant regulator information for systemic risk purposes (including the identification, analysis and mitigation of systemic risks);

* Regulators should encourage and take account of the development, implementation and convergence of industry good practices, where appropriate;

* Regulators should have the authority to co-operate and share information, where appropriate, with each other, in order to facilitate efficient and effective oversight of globally active managers/advisers and/or funds and to help identify systemic risks, market integrity and other risks arising from the activities or exposures of hedge funds with a view to mitigating such risks across borders.

Kathleen Casey, Chairman of the Technical Committee, said:

“The application of these principles, in a collective, cooperative and efficient way, can provide regulators with the tools to obtain sufficient, relevant information in order to address the regulatory and systemic risks posed by hedge funds.”

AIMA while commenting on the report said that the report reflected its support for the provision of systematically relevant information by managers of large hedge funds to national regulators. However, it said that hedge fund managers rather than the funds themselves should be registered, the route planned by the U.S. administration. It also warned against regulators requiring more information than necessary.

`http://www.aima.org/en/media_centre/press-releases.cfm/id/798F2100-432E-463B-92E75C4CE7BD1FFB`

Andrew Baker, chief executive of AIMA said “We are concerned that these recommendations may lead regulators to seek quantity rather than quality of data. It is important that regulators have the expertise and resources to deal with the data they receive.”

Related Link:

* IOSCO Publishes Hedge Funds Oversight Recommendations