Head of Retail Policy at the Financial Services Authority (FSA), outlined the FSA’s approach to the regulation of hedge funds and private equity funds.
Waters reiterated that the FSA’s view remains that properly run alternative investment funds contribute to the overall efficiency and liquidity of global capital markets.
The key risks identified include potential market disruption, loss of confidence, market abuse and operational deficiencies. To address these, the FSA has implemented periodic surveys to better understand the risks, enhanced the role of its alternative investments monitoring team (created in 2005) and increased its co-operation with other international regulators such as the US Securities and Exchange Commission and the US Federal Reserve.
To reduce the threat of market abuse and the risk of fraud, the FSA is working with the International Organization of Securities Commissions (IOSCO) to establish good practice for the valuation of complex assets. FSA will continue to use both prevention and enforcement where necessary to ensure that potential market abuse is minimized. This includes monitoring “hot-spots”, the creation of a modern transaction analysis system and industry co-operation. The FSA is also exploring how the market for alternative investment funds may be opened up to a wider group of investors by relaxing its listing rules and creating an on-shore retail fund of hedge funds vehicle.