WEST PALM BEACH, FL (HEDGECO.NET) – The financial services regulator for Great Britain, the Financial Services Authority (FSA), said it is examining the potential risks that hedge funds pose to primebrokers following the increases in hedge fund assets recorded in recent times. According to published reports, the FSA has initiated a review of about a dozen of the British prime brokeragecompanies; such review may determine the level of their exposure to hedge funds.
Mr. Stephen Drayson, manager for wholesale investment banks at the FSA made this disclosure to a Euromoney reporter in the recent �Future of hedge funds conference.� Drayson said the FSA is now taking a �whole firm� approach in this study differing from the earlier approach. Drayson however, noted that such review may not necessarily lead to any new legislation for the UK�s growing hedge fund industry.
Great Britain is the largest hedge fund market in the European market, and since the collapse of LCTM in 1998, the regulatory agency has intensified its oversight of the British hedge fund industry. Drayson however, noted that prime brokerage units of the British investment banks do not necessary handle all the hedge fund business.
The FSA is gathering important data on the loan made by the investment banks to hedge fund companies, according to Drayson. The lack of such oversight in 1998 indirectly led to abuses of the credit structures, which resulted in the collapse of LCTM.
An earlier FSA study, according to Drayson, has shown increasing growth in �multiple prime broker relationships with hedge funds.� This question has made it difficult for authorities to establish appropriate collateral margins, particularly in the concentrated illiquid positions.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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