Via The Independant Online:

Fears of hedge-fund meltdown prompt FSA to launch probe

By Jason Nissé
May 8, 2005

John Tiner, the chief executive of the Financial Services Authority, has launched a wide-ranging investigation into the workings of hedge funds in London which is expected to lead to a massive shake-up in the way they are regulated.

The probe was prompted by concerns that certain of the "cutting-edge" trading practices in the £500bn industry, much of which is based in London, could lead to market abuse and financial instability. There are also fears that a massive financial scandal could be brewing after what was described by an industry insider as "a few near misses".

Regulators from the FSA have been visiting scores of hedge funds in recent weeks, often sitting in with traders and checking dealing data. They have also been taking written submissions from leading hedge fund managers and talking to traders who deal with them at the large investment banks.

It is hoped that a report on the hedge fund industry, which will recommend new reporting and regulatory procedures, will be on Mr Tiner's desk by the end of next month. He is expected to send it out to the City for consultation before any new systems are put in place.

The FSA is concerned that hedge funds are having a disproportionate influence on the markets, increasing volatility and adding to trading risks. It has also been concerned that it is not up to speed with some of the highly sophisticated trading strategies that have been developed in this fast-moving sector.

Much more on the FSA investigation and how it jibes with recent comments from Federal Reserve Chairman, Alan Greenspan to be found here.

-- MDT

Labels: Financial Services Authority, insider trading