The paper says it looks to mitigate risks of trading and lack of transparency traditionally associated with hedge funds and asset managers - dubbed the shadow banking industry by supervisors.
"The recent financial crisis is not a hedge fund crisis, and indeed regulators recognise that hedge funds contribute to market liquidity, price efficiency, risk distribution and global market integration," said Kathleen Casey, chairman of Iosco's Technical Committee. "However, recent market events have given governments and regulators the opportunity to consider the possible role hedge funds may play in amplifying crises through their trading strategies, reliance on leverage and the need to liquidate positions quickly."
The report was prepared by the Technical Committee's Task Force on Unregulated Financial Entities, co-chaired by Italian prudential regulator Consob and the UK's Financial Services Authority (FSA).
Iosco says it has presented its findings to the G-20 Working Group on Enhancing Sound Regulation and Strengthening Transparency, ahead of the meeting by G-20 national leaders in London on April 2.
The guidelines come as US and European regulators are looking to supervise funds more closely, as their role in the unfolding crisis has become more pronounced - from frauds such as Bernard Madoff's $50 billion ponzi, to the impact of short selling on financial stability.
The closing date for submissions to the consultation report is April 30, 2009.
The recommendations may be read here.