The UK’s Finacial Conduct Authority FCA Has Ramped Up Scrunity of the Hedge Fund Industry.
FCA – and the Bank of England’s Prudential Regulation Authority scrutiny of the hedge fund industry and in a growing sign of its reach is also paying more attention to the activities of US hedge funds with operations in the UK.
The regulator has begun to vet senior appointments as part of its oversight of individuals with so-called significant influence functions according to FT.
FCA – and the Bank of England’s Prudential Regulation Authority – already scrutinise senior appointments to banks and insurers, a broad focus on hedge funds is a new area.
Several candidates for jobs have been informally vetoed by the watchdog following preliminary interviews. No formal rejections have been made – the FCA prefers to indicate quietly to prospective executives that they should withdraw their candidacy.
Earlier this month one of the largest hedge funds in the US was visited by an FCA delegation. While the visit was not a “formal inspection”, according to a person familiar with the matter, it has nevertheless raised eyebrows among the tightly knit, and once little-regulated, hedge fund community.
“The FCA is looking more closely at US hedge funds than the SEC is,” one hedge fund lawyer remarked.
The UK regulator is particularly keen to ensure that US funds’ London-based operations are overseen by individuals who are aware of a primary responsibility to the FCA and not their superiors in the US.
The US regulatory approach has traditionally differed in relying on stricter punishments for rulebreakers, compared with stricter initial rules and hurdles in the UK.
“The asset management sector is a key area of supervisory focus for the FCA,” the regulator said.
“We are engaging with the industry a lot more and that includes increased engagement with and expectations of senior management.”
Under the previous regulatory regime, the Financial Services Authority only paid attention to the 35 largest hedge fund managers in London and assigned them a case officer each.
The new regime will see the FCA involving itself in the affairs of hedge fund managers across the board, regardless of their size.