Britain's FCA Cracks Down On Hedge Funds

Jun 20 2013 | 11:51am ET

The U.K.'s new financial-markets regulator is tightening its oversight of the hedge fund industry.

The Financial Conduct Authority, which succeeded the Financial Services Authority in April, has begun to review proposed senior appointments at hedge funds, and has informally vetoed several candidates, the Financial Times reports.

Formal rejections have not been made, with the FCA preferring firms to withdraw unacceptable candidates for significant influence functions.

The FCA has also broadened its scrutiny of London's hedge funds; where the FSA focused only on the U.K.'s 35 largest hedge fund managers, the FCA plans to review firms regardless of size.

"The FCA has become far more intrusive in assessing competency of senior individuals, particularly in respect of governance and risk management," Julian Korek of hedge fund consultancy Kinetic Partners told the FT. "We have seen recent instances where [senior executives] have been required to demonstrate they have understood the key risks that organization faces and be able to provide evidence that they can challenge senior executives effectively in this area."

The FCA is also taking a close look at U.S. hedge funds' London operations, with a "formal inspection" of one major American hedge fund earlier this month. The regulator is reportedly concerned that U.S. funds' London offices are too beholden to their U.S. superiors and not beholden enough to the FCA.

"The FCA is looking more closely at U.S. hedge funds than the SEC is," a hedge fund lawyer told the FT.

"The asset management sector is a key area of supervisory focus for the FCA," it said. "We are engaging with the industry a lot more and that includes increased engagement with and expectations of senior management."

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