Stephen Po (Senior Director of Intermediaries & Investment Product Division, SFC and Chairman of IOSCO) signaled during a talk on “Funds, Hedge Funds & Advisers” during a recent 2-day SEC regulatory summit (sponsored by Investoregulation) that the SFC will be examining ways to implement the G20 recommendations (as adopted by IOSCO) for regulators to guard against systemic risk in the hedge fund industry.
Po explained that the SFC are in the process of formulating a questionnaire, which will be part of a survey of the hedge fund industry later this year or early next. The survey will invite all HK-based hedge funds to provide (albeit on a voluntary basis) details of, among other things, the size of the funds under management, the name of custodian, administrator, legal adviser and auditor. Significantly however, even though the survey will be voluntary, Po cautioned that any hedge fund / hedge fund manager who fails to disclose this information (or the names of custodians or administrators who are relatively unknown) will be assigned a red-flag and potentially subject to further investigation. Po urged all attending to take note and ensure their house is in order.
This is the first occasion on which the SFC has made public its views / thinking on the approach it intends to adopt in respect of the supervision of hedge funds and is therefore of critical interest to clients in the hedge fund industry. Arguably funds based in Hong Kong may no longer be able to adopt a wait to see approach to see what new regulations actually comes into force before they adopt more rigorous audit and compliance procedures and stronger internal controls. Instead, in ensuring that funds are able to respond to the increased oversight from the SFC to provide more information, funds may wish to consider how they ought to make their operations considerably more transparent than was the case.