Canada Plans Strict Hedge Fund Oversight

Feb 21 2007 | 10:53am ET

As regulators in the United States and Europe argue and haggle over what hedge fund regulation—if any—should look like, the great frozen north is about to become a four million square mile testing ground for strict regulation and cooperation among independent regulatory authorities.

The Canadian Securities Administrators, the cooperative umbrella group for Canada’s 13 provincial and territorial securities regulators—the country has no national regulatory body—has unveiled plans to harmonize their regulations and regulate hedge funds as tightly as they do mutual funds. Under the proposal, which the CSA hopes to have implemented by the end of the year, hedge funds will be required to register with their provincial or territorial regulator and pass proficiency tests.

In addition, both managers and sales staff would have to undergo a background check. For their troubles, those that pass muster will be entered into a national registry, granting them recognition across Canada. That registry should be up and running by April 2008, according to the Ontario Securities Commission, the largest of Canada’s regulators.

The Canadian hedge fund industry manages some C$26.6 billion (US$22.7 billion) in assets. Regulators have been under pressure to place more stringent checks on the funds since the collapse of domestic hedge funds Portus Alternative Asset Management and Norshield Asset Management. In addition, the trader behind the Amaranth Advisors collapse, Brian Hunter, was based in Calgary, Alberta.

Interested parties have four months to comment on the CSA’s 124-page draft.

Canada’s move comes in the wake of the recent G7 meeting, at which Germany pushed for harmonization of international regulation of the funds.

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