Thursday, June 25, 2009

Update: IOSCO Final Report on Hedge Fund Oversight

On June 22, 2009, the International Organization of Securities Commissions’ (IOSCO) Technical Committee released its final report on Hedge Funds Oversight. The report, which follows the preliminary findings and recommendations published by the IOSCO on March 19, contains six high level principles designed to assist securities regulators in addressing the regulatory and systemic risks posed by hedge funds in their respective jurisdictions within the context of a consistent global framework. The IOSCO's six principles are:

  1. Hedge funds and/or hedge fund managers/advisers should be subject to mandatory registration;

  2. Hedge fund managers/advisers which are required to register should also be subject to appropriate ongoing regulatory requirements relating to:

    a. Organizational and operational standards;

    b. Conflicts of interest and other conduct of business rules;

    c. Disclosure to investors; and

    d. Prudential regulation.

  3. Prime brokers and banks which provide funding to hedge funds should be subject to mandatory registration/regulation and supervision. They should have in place appropriate risk management systems and controls to monitor their counterparty credit risk exposures to hedge funds;

  4. Hedge fund managers/advisers and prime brokers should provide to the relevant regulator information for systemic risk purposes (including the identification, analysis and mitigation of systemic risks);

  5. Regulators should encourage and take account of the development, implementation and convergence of industry good practices, where appropriate;

  6. Regulators should have the authority to cooperate and share information with each other, where appropriate, in order to facilitate efficient and effective oversight of globally active managers/advisers and/or funds and to help identify systemic risks, market integrity and other risks arising from the activities or exposures of hedge funds with a view to mitigating such risks across borders.

IOSCO Press Release
Full Text of Hedge Fund Oversight: Final Report