SEC chief calls hedge fund oversight "inadequate"

The comments follow last month's Court of Appeal decision, overturning a requirement for hedge funds to register with the SEC. Cox told the US Senate banking committee yesterday that the decision had made the commission unable to regulate US hedge funds.

"The commission stated, when we adopted the hedge fund rule in 2004, that its then-current programme of hedge fund regulation was inadequate," said Cox. "I believe that is once again the case."

The SEC will try to claw back its lost powers by introducing new rules on hedge funds, Cox added: a new anti-fraud rule would "look through" the hedge fund to its investors, reinforcing advisers' responsibilities to their backers, and other now-invalidated requirements on data storage and the coverage of offshore funds.

Some of the clawback might require new legislation, Cox said. But Treasury undersecretary Randal Quarles, while warning that high levels of leverage were an important source of risk, said that calls for new legislation were premature.

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