The Financial Stability Oversight Council, or FSOC, released an update of its review of asset management products and activities. The statement notes that its review of the use of leverage in the hedge fund industry suggests a need for further analysis of the activities of hedge funds. FSOC is creating an interagency working group that will share and analyze relevant regulatory information in order to better understand whether certain hedge fund activities might pose potential risks to financial stability. In particular, the working group will:

  • Use regulatory and supervisory data to evaluate the use of leverage in combination with other factors—such as counterparty exposures, margining requirements, underlying assets, and trading strategies—for purposes of assessing potential risks to financial stability;
  • Assess the sufficiency and accuracy of existing data and information, including data reported on Form PF, for evaluating risks to financial stability, and consider how the existing data might be augmented to improve the ability to make such evaluation; and
  • Consider potential enhancements to and the establishment of standards governing the current measurements of leverage, including risk-based measures of leverage.

The working group will seek to report its consolidated findings to the Council by the fourth quarter of 2016. If risks to financial stability are identified, the Council will:

  • consider what actions regulators can take using existing authorities;
  • assess whether existing regulatory and supervisory tools are sufficient to address risks; and
  • evaluate whether additional authorities may be needed for market regulators or other supervisory agencies.