Financial White Paper

FSA's Financial White Paper on Hedge Funds

The British Chancellor of the Exchequer, Alistair Darling, has made the Financial Services Authority responsible for deciding whether to expand regulation over financial sector--specifically hedge funds. Hedge funds have been charged with posing a systemic risk to financial stability but the Financial White Paper issued by the government largely discredited the significance of hedge funds in the financial system.

In the small print, the paper poured cold water on concerns by concluding that hedge funds are " a relatively small part of the financial system" that are "already regulated". However, the paper found that hedge funds "can contribute to systemic risk through their interactions with bank counterparties" and as such would back recommendations in the Turner Review regarding increased transparency. Source

New guidelines require that hedge funds report information on leverage and strategies to the Financial Services Authority. The FSA also will be given the ability "to demand that individual positions or funds are unwound in 'heated' or 'exceptional circumstances'." The paper favored the G20's proposed reforms over the more extreme measures prescribed by the EU. The Financial Paper does add some weight to the hedge fund industry's argument against the EU plan but the Europeans could still push it through.

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Tags: Financial White Paper, Finance White Paper, Senate Finance White Paper, UK Financial Services Authority, Alistair Darling, Hedge Funds Regulation, Hedge Funds White Paper