Global regulators back hedge fund registration

A trading screen shows share prices predominantly in red, indicating a fall in values in an undated file photo. Ian Waldie/

LONDON (Reuters) - A global regulatory body backed compulsory registration of hedge fund managers on Monday to restore investor confidence, saying the $1.3 trillion (789 billion pounds) sector did not cause the credit crunch but may have amplified its effects.

The International Organisation of Securities Commissions (IOSCO) represents regulators from over 100 countries, including the United States, Japan and the 27-nation EU.

Its final principles flesh out a statement made in March and a pledge from the G20 group of industrialised and emerging market countries in April that all hedge fund managers should be registered and directly supervised.

There are already signs that full convergence on global hedge fund rules may be difficult to achieve.

The EU has put forward a draft law that goes much further than the final principles adopted by IOSCO. The United States is also planning mandatory registration of hedge funds but so far in a less extensive way than the EU.

"What this is demonstrates is that we are all moving in the same direction even if there are slightly different timetables," said Verena Ross, director of strategy and risk at the UK Financial Services Authority and co-chair of IOSCO's hedge funds task force.

IOSCO's six principles include mandatory registration of hedge fund managers who should disclose a range of information to regulators and investors. Prime brokers who provide funding to hedge funds, typically banks, should also be subject to mandatory registration and supervision.

Hedge funds are currently supervised indirectly through prime brokers. Many countries already require registration of managers, though not the underlying fund, many of which are based in offshore centres like the Cayman Islands.

Regulatory oversight should be more focused on systemically important and higher risk hedge fund managers, IOSCO said.

Some policymakers say direct supervision was needed as big hedge funds posed a risk to financial stability. The industry says it has been made a scapegoat because of activist hedge funds and no fund has needed bailing out with taxpayer cash.

"We all recognise that there are vast numbers of hedge funds that might not pose a systemic risk at all," Ross said.

The EU draft law lays down thresholds for "systemically" important funds and for applying capital requirements but IOSCO said more work was needed on both issues.

"We obviously need to make sure we just don't focus on hedge funds in isolation... It's very clear we don't view the current crisis as a hedge fund crisis," Ross said.

The Cayman Islands Monetary Authority, which oversees many hedge funds, became a member of IOSCO this month which should improve the flow of information between regulators as required under the IOSCO principles.

"That will create greater confidence across the globe that there are common standards being implemented as to the supervision of hedge funds and hedge fund managers," Ross said.

IOSCO said the sector brought benefits such as providing liquidity, price efficiency and risk distribution but regulation was needed as there are questions over the effectiveness of industry codes.

(Reporting by Huw Jones; Editing by Ruth Pitchford)