
FSA and Iosco eye hedge fund fraud
Hector Sants, managing director of wholesale and institutional markets at the FSA, outlined the views of the UK’s financial watchdog in a letter to Dan Waters, chairman of the valuations subcommittee at the International Organisation of Securities Commissions (Iosco), a global network for financial regulators to share information and formulate policy on fraud.
Sants wrote that investment firms should ensure that fund managers do not influence the valuation of funds. This requires a separation of duties between portfolio managers and the back office, which may also include external monitoring from a third party and regular reconciliations with the prime brokers, banks that finance the hedge fund’s positions along with the administrator, wrote Sants.
“It is recommended that managers have procedures in place for the day-to-day operation of the pricing process. This document should be updated when the manager starts to use a new instrument/investment type that has significantly different characteristics from those in their current portfolio,” wrote Sants.
Philippe Richard, secretary-general of Iosco, told Risk News that the UK’s FSA was a “leading force” for improving the regulation of the burgeoning hedge fund sector. He said Iosco would carefully consider the FSA’s views on the valuation of hedge fund assets.
Richard said: “We are working on the issue of valuation and interviewing industry people, especially with regards to the valuation of illiquid instruments.”
Earlier this year, the FSA barred Jae Wook Oh, the chief executive of the London-based adviser Regents Park Capital Management, from working in the industry for three years after uncovering faulty valuations he made in 2005.
The importance of fund valuations and the need for robust independent valuation processes was highlighted by the FSA in a discussion paper, 05/4 Hedge Funds: A discussion of risk and regulatory engagement, published in March this year.
A spokesman for the FSA said London-based hedge fund managers were using third-party administrators based in Dublin – which are regulated by the Irish Financial Services Regulatory Authority - to obtain independent valuations.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Basel’s IRRBB shock scenario update hit by US crisis
Recalibration of shocks had been touted for Q3, but wider rethink may now cause delay
HKMA launches consultation on green taxonomy
Regulator could use proposal to assess progress of banks towards climate goals
After SVB downfall, EBA stress test seeks out unrealised losses
European regulator asks for data on the fair value and sensitivity of bonds and their hedges
EU banks fear Brexit battle over FRTB internal models
Bank of England approach looks easier, but that may not make much difference to model uptake
Europe’s new IRRBB test: the riddle with no answer
A proposed compromise on net interest income test is not scientific, but exact calibration may be impossible
Eurex clearing chief calls for active account carve-outs
Isda AGM: Müller says EU clearing thresholds should exempt market-making and US client trades
The regulator that troubleshoots first, asks questions later
Canada’s bank watchdog aims to intervene early to tackle burgeoning risks, even at the expense of “perfect” regulatory decisions
Banks dispute EBA’s new threshold for IRRBB test
Banks say new proposal for identifying outliers on net interest income is still too severe