Hedge Funds May Have To Report Own Insider-Trading Suspicions

Jan 7 2013 | 11:03am ET

Authorities may require hedge funds themselves to help out in their continuing bid to stamp out insider-trading and other illegal activities in the industry.

The U.S. Treasury Department's Financial Crimes Enforcement Network may require hedge funds to file reports of suspicious trading, as banks and brokerages are already required to do. In addition to reporting its own employees, hedge funds could, like those already required to file suspicious activity reports, also have to report outside parties.

The proposed rule could be published for comment during the first half of the year, Reuters reports.

Under current rules, SARs must be filed within 30 days of initial determination, and cannot be delayed for more than 60 days. Firms must also keep the SARs they file for five years; those who fail to file them can be fined or jailed. Between 2003 and 2011, an average of more than 12,000 SARs were filed per year, although the number appears to be increasing; there was a 34% increase in SARs filed on suspicion of insider-trading in 2011. Numbers for 2012 are not yet available.

It is not the first time that FinCEN has looked to extend SARs, which are already filed against hedge funds, to the industry. It dropped a 2003 proposal in 2008, deciding it was too difficult to define a hedge fund. That difficulty has since be rectified by the Dodd-Frank financial regulation law, which requires hedge funds to register with either the Securities and Exchange Commission or state regulators.

While some in the industry will no doubt grouse about further regulatory headaches and bills, the Managed Funds Association sounded a cautiously supportive note.

"We have a history of strong support for Treasury's efforts to promote the prevention, detection and prosecution of international money laundering," MFA spokesman Steve Hinkson said.


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