Dubai First With HF Code

Date: Thursday, December 13, 2007
Author: Hedge Fund Daily

The Dubai Financial Services Authority has made history by becoming the first regulator to issue a code for hedge funds. Titled Hedge Fund Code Of Practice, it comes after several months of consulting with and comments from hedge fund professionals as well international regulators. The code, which goes into effect Jan. 20, focuses on nine key principles relating to operations, assets, back-office functions and market risks. For example, the code recommends that:

  • Principle 1--A hedge fund operator should have “appropriate skills and resources” to conduct the fund’s operations.
  • Principle 2--A HF operator should “develop and implement a robust and flexible investment process” to suit its objectives and risk profile of its strategies.’
  • Principle 3--An operator should have “systems and controls to mitigate trading-related risks such as price overrides and failed trades.”
  • Principle 7—A HF operator “should not have arrangements under which any material benefits or concessions

are provided to some investors where it would be unfair to any other investors in the fund;” in other words, no side pockets.

The code notes that it is “only best practice standards” and is not a substitute for compliance with Dubai’s Collective Investments Law regime. DFSA CEO David Knott said in a statement: “Having received highly positive feedback through the consultation period, we are confident that the Code will provide investors and hedge fund managers with the backdrop for the successful development of hedge funds in the DIFC by ensuring the industry has the necessary regulations in place to prosper.”