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FSA Publishes Update On Regulation Of Hedge Funds (March 27, 2003)

The FSA will not be relaxing the rules governing the marketing of hedge funds to retail investors it announced early this week in its Feedback Statement on Hedge Funds as it believes the current regime provides the right balance of consumer protection and access.

The feedback showed that there was neither a great desire to provide and sell hedge funds to retail customers nor significant demand from these investors for access to such products. Respondents also said that there was no need to change the existing supervisory regime applied to hedge fund managers in London.

Marketing of Hedge Funds to Retail Customer

Commenting on the feedback received covering the marketing of hedge funds to retail customers, Gay Huey Evans, Director of Markets and Exchanges said:

"Generally, the feedback we received did not indicate a great desire on the part of hedge funds or investment advisers to provide or sell hedge funds as retail products. Nor was there evidence of significant demand from retail investors."

"However, we will be keeping the regulatory status of presently unregula ted schemes under review and will be discussing with market participants and other interes ted parties the possibility of allowing a broader range of funds to be brought into the regime for retail investment products. The ongoing Listing Review and forthcoming review of Collective Investment Schemes may have implications for Hedge Funds."

Regulation of Hedge Fund Managers

The FSA regulates hedge fund managers in the UK but does not regulate the funds themselves. Respondents to the Discussion Paper did not think there was a need to make changes to the current regulatory regime. The FSA will nevertheless undertake some thematic work on the adequacy of systems and controls in hedge fund managers.

Gay Huey Evans commented:

"We do not and cannot regulate the hedge funds themselves or set standards for them to achieve. However, all firms based in London , including the hedge fund managers, must take reasonable care to maintain systems and controls appropriate to their business. Hedge fund managers should be properly qualified and controlled when undertaking investment activities for their client fund. Any hedge fund manager in breach of these standards would be in breach of the rules."



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