IOSCO Seeking To Regulate Hedge Fund Industry

by Carla Johnson, Investors Offshore.com

07 October 2005

The International Organization of Securities Commissions (IOSCO), the global securities markets regulator, has said that it is drafting new rules aimed at controlling the increasingly influential $1 trillion hedge fund industry.

Repeating his warning that hedge funds "pose a big threat" to the stability of the world financial system, Jochen Sanio, head of German financial supervisor BaFin, which hosted the IOSCO conference, told members that: "It cannot and must not be that the largest market participants in the world taken together are not controlled at all."

Last month, Sanio told an investment conference organised by Goldman Sachs that he was "scared as hell" of the influence that hedge funds now exert over the financial markets, and cited them as the number one threat to global financial stability with their risky and often highly leveraged positions.

IOSCO has not set a date for the introduction of the new regulations, but it assured the hedge fund industry that it will be consulted throughout.

While there is a growing consensus among the world's financial regulators for greater hedge fund transparency, recent statements from the SEC's Roel Campos and the EU's Charlie McCreevy have reduced fears of tighter regulation in the US or at European level.

Although new rules will require many hedge fund advisors to register with the US securities regulatory agency starting in February 2006, Campos told a London Managed Funds Association symposium in August: "I don't see a huge, in-your-face kind of regime. Many, if not most, offshore hedge funds will qualify for regulation lite."

European Union Internal Market Commissioner Charlie McCreevy has also said that he is against the creation of new hedge fund rules, despite growing concerns about risk.

Earlier in the year, McCreevy rejected a suggestion he was "chomping at the bit to regulate hedge funds".

"I certainly am not," he told journalists whilst unveiling a consultation period on how to streamline Europe's fragmented investment fund industry.

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