"OSFI says bank dealings with hedge funds are acceptable"

Date: Thursday, February 1, 2007
Author: Advisor.ca

The Office of the Superintendent of Financial Institutions Canada has found that Canada's major banks' exposure to hedge funds is very small, and when they do deal with hedge funds, they take a sufficiently cautious approach.

In her remarks to the Senate Standing Committee on Banking, Trade and Commerce, Julie Dickson, acting superintendent of the OSFI, said her office, which assesses the risk strategies of Canadian financial institutions, felt it was prudent to review how the banks deal with hedge funds.

"OSFI is paid to be vigilant and to do something if we think that the entities we regulate and supervise are engaged in unsafe or unsound activity, or not fully understanding the potential risks in their businesses, or, in the case of the issue at hand, not adequately assessing the risk in their hedge fund exposure," Dickson said.

The review found that Canadian banks do not deal with that many hedge funds and when they do, they are aware of the sometimes high risk associated with them and have put proper safeguards in place.

Nevertheless, she added that the OSFI will continue to monitor the presence of hedge funds in Canada and follow the lead of other nations in regulating them.

"While OSFI does not currently have any concerns with the participation of Canadian financial institutions in hedge funds, activity in this area will continue to be evaluated as part of OSFI's ongoing supervisory process," she said. "Further, we meet with our international counterparts on a regular basis to discuss issues, including hedge funds. With respect to hedge funds, we pay particular attention to the work and views of regulators in the United States and United Kingdom, as those countries are where the bulk of hedge fund activity occurs."