The chief executive of the UK's Financial Services Authority, Hector Sants, may have seen his comment about hedge funds not needing additional regulation splashed all over the UK media, but it is the comments of the former US Federal Reserve chairman, Alan Greenspan, that will make the experts take note.

Greenspan admitted to a House of Representative committee that he had 'made a mistake' in trusting free markets to regulate themselves effectively. 'I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,' Greenspan said. He added that he saw no option but to impose legal quality requirements for certain types of securities, and that other regulatory changes would have to be made.

While Greenspan did not comment specifically on hedge funds, they are surely to come under the microscope soon. There are already calls for greater regulation of hedge funds, and the volume is likely to rise as pressure grows to clamp down on parts of the financial industry that are perceived to have contributed to the mayhem in the financial markets over the past year.

Of course, the US Securities and Exchange Commission did try to did impose a registration requirement on hedge fund managers in 2006, only for chairman Christopher Cox and his colleagues to be slapped down by the courts for exceeding their powers. A second attempt to bring the sector under greater regulation is quite possible, and one imagines that this time the US regulator will do it by the book.

Still, Sants does have a point. With all UK-based hedge fund managers (who make up more than three-quarters of the European industry at the last count) already supervised by the FSA, the US has some way to go to catch up.


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