The Technical Committee of the International Organization of Securities Commissions (“IOSCO”) published “Hedge Funds Oversight: Final Report” (the “Report”), which articulates six high level principles designed to enable securities regulators in different jurisdictions to address the regulatory and systemic risks posed by hedge funds using a globally consistent approach. The Report emphasizes the need for collective global action and application, but acknowledges that some of the Technical Committee’s recommendations will need support from other regulators, including banking standard setters. The Report also calls for a strengthening of regulatory resources and improved information sharing among regulators. SEC Commissioner Kathleen Casey chairs the Technical Committee.
The six high level principles are as follows:
- Hedge funds and/or hedge fund managers/advisers should be subject to mandatory registration;
- Hedge fund managers/advisers that are required to register should also be subject to appropriate ongoing regulatory requirements relating to:
- Organizational and operational standards;
- Conflicts of interest and other conduct of business rules;
- Disclosure to investors; and
- Prudential regulation.
The Report notes that the focus of the initiative that produced the Report was on hedge funds, and not on “other potentially ‘unregulated’ entities such as private equity funds,” or special investment vehicles. It goes on to state, however, that many of the Report’s observations and conclusions may be applicable to other market participants that hold or control large pools of capital. (The Technical Committee issued a final report on private equity in May 2008, which is available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD274.pdf.)
The Report, which includes additional detail on disclosure (to investors and to regulators), risk management, operational standards and areas of oversight, is available at www.iosco.org/library/pubdocs/pdf/IOSCOPD293.pdf