The UK's Financial Services Authority has appointed the head of a new unit which is tasked with monitoring the activities of 25 hedge funds which the regulator deems may be impacting the most on London's financial markets, the Financial Times has reported.
According to the FT, the FSA revealed on Tuesday that it has chosen Andrew Shrimpton, the regulator's current head of asset management, to lead a six-strong team at the new hedge fund unit. The FSA has not disclosed the names of the hedge funds which are to be under scrutiny.
The move comes at a time when regulators around the world are growing increasingly nervous over the influence that hedge funds, many of which control billions of dollars in assets and are highly leveraged, are having over day to day functioning of the money markets. A big worry is that, if left unmonitored, the trading activities of certain hedge funds could pose a threat to the stability of the financial system, particularly if they have staked large positions in certain markets.
This anxiety is particularly acute with the UK financial regulators because London, in addition to being Europe's largest financial centre, is also home to many large hedge funds. Consequently, in June, the FSA published two discussion papers, one of which, according to the FT, alleged that certain UK-based funds were "testing the boundaries of acceptable practice with respect to insider trading and market manipulation".
"We view hedge funds as a significant, useful and growing asset class through their role in providing market liquidity and diversification options for investors," noted Hector Sants, FSA Wholesale Markets and Institutions Managing Director, upon the release of the papers.
"However the activities of hedge funds do pose risks to the UK's financial markets and the work of the FSA, and it is right that we fully understand them," he added.
Mr Shrimpton is due to commence his new role at the end of next month when the consultation period for the discussion papers ends.
A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
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