AIMA and CBI react to Turner Review

Date: Thursday, March 19, 2009
Author: Hedgeweek.com

Lord Turner has published his review of financial regulation, stating that regulators and central banks need to gather better macro-prudential information on hedge fund activities.

Andrew Baker, chief executive of the Alternative Investment Management Association, says he 'completely supports' this proposal.

'In fact we called, in our new policy platform of the 24 February, for the disclosure of systemically significant information by hedge fund managers to their national regulators (not all assets are managed in a collective fund structure). We also called for a global manager authorisation and supervision template on the FSA model. Aima took the lead on behalf of the hedge fund industry globally in these respects,' Baker states.

The review points out that hedge fund leverage 'is typically well below that of banks - about two to three on average' compared with levels of up to 50 times with some of the banks; and that 'hedge funds in general are not today bank-like in their activities'.

'Given those qualifications, we do appreciate why in the interests of financial stability the review says that regulators need the power to apply appropriate prudential regulation to hedge funds if they judge that their activities have become bank-like in importance,' Baker adds.

John Cridland, deputy director-general of the Confederation of British Industry, says: 'Adair Turner (pictured) has come up with targeted proposals that deal with specific failings and risk to the system as a whole, rather than responding to the wilder calls for action against banks. His dispassionate, forensic approach has much to recommend it. A rush to legislation risked a repeat of a Sarbanes-Oxley type over-reaction, which would simply have compounded the effects of the recession.'
 
However, he says the CBI is cautious about the review's proposals on liquidity and product regulation.

'Rushing ahead with requirements for bank liquidity could put the UK out of step with other countries and force firms to manage their reserves on a country-by-country basis, which would be a blow to the UK's competitiveness,' Cridland says.