Iosco publishes hedge funds oversight recommendations

Date: Friday, March 20, 2009
Author: Hedgeweek.com

The International Organization of Securities Commissions has published a consultation paper containing preliminary findings and recommended regulatory approaches to mitigate risks associated with the trading and traditional lack of transparency of hedge funds.

The report, entitled Hedge Funds Oversight: Consultation Report, was prepared by the Iosco Technical Committee's Task Force on Unregulated Financial Entities, which is among those established in November 2008 and is co-chaired by the Consob of Italy and the Financial Services Authority of the UK.

The task force aims to support the initiatives undertaken by the G20 to restore global growth and achieve much needed reforms in the world's financial systems in the wake of the financial crisis.

The preliminary findings and recommendations of the task force have been presented to the G20 Working Group on Enhancing Sound Regulation and Strengthening Transparency and to the Financial Stability Forum.

Kathleen Casey, chairman of the Technical Committee, says: 'The recent financial crisis is not a hedge fund crisis, and indeed regulators recognise that hedge funds contribute to market liquidity, price efficiency, risk distribution and global market integration. However recent market events have given governments and regulators the opportunity to consider the possible role hedge funds may play in amplifying crises through their trading strategies, reliance on leverage and the need to liquidate positions quickly.

'However, as our report shows, the approach to the oversight of hedge funds and the mitigation of the associated risks varies greatly across jurisdictions. Therefore Iosco believes that concerted, global regulatory action is required to appropriately and effectively mitigate the risks associated with hedge funds, along with stronger cooperation and information sharing arrangements between regulators.

'This consultation paper solicits views on whether the preliminary recommendations provide regulators with the relevant guidance necessary to address the risks posed by hedge funds in their own jurisdictions while supporting a globally consistent approach.'

The report discusses the regulatory issues presented by hedge funds, in particular focusing on the recent financial crisis, issues around systemic risk, and regulatory issues regarding conduct of business.

The closing date for submissions to the consultation report is 30 April 2009.