Hedge fund industry body the Managed Funds Association has outlined various considerations that it believes policymakers should undertake as they debate regulatory reforms in an effort
Hedge fund industry body the Managed Funds Association has outlined various considerations that it believes policymakers should undertake as they debate regulatory reforms in an effort to restore investor confidence, stabilise the financial system and hasten economic recovery.
Speaking at a hearing of the Senate Committee on Banking, Housing and Urban Affairs on enhancing investor protection and regulation of securities markets, Richard H. Baker, president and chief executive of the organisation (pictured), said: ‘The restoration of stability and confidence in the financial markets will require constructive, collaborative, efforts among policy makers and the private sector towards the shared interest of re-establishing a sound, stable financial system.
‘We believe that goal can be accomplished, in part, through pursuit of a ‘smart’ financial regulatory system – one which includes a systemic risk regulator as part of that framework.
‘We recognise that, in addition to systemic risk regulation, some policy makers and regulators have contemplated the notion of a prudential regulatory framework that includes mandatory registration for hedge funds. There are a great many issues that should be considered in determining what, if any, such framework should look like. As an association, we are committed to being constructive participants as discussions on these issues progress.’
Baker stressed several principles that should be considered:
• The goal of regulatory reform should be to develop intelligent regulation, which makes the system stronger for the benefit of businesses and investors;
• Prudential regulation should address identified risks or potential risks, and should be appropriately tailored to those risks;
• Regulators should engage in ongoing dialogue with market participants. Any rulemaking should be transparent and provide for public notice and comment by affected market participants, as well as a reasonable period of time to implement any new or modified regulatory requirements;
• Reporting requirements should provide regulators with the right information to allow them to fulfill their oversight responsibilities as well as to prevent, detect and punish fraud and manipulative conduct;
• A prudential regulatory framework should distinguish, as appropriate, between different types of market participants and different types of investors or customers to whom services or products are marketed. Investor protection should not be limited only to retail investors, but a ‘one-size fits all’ approach will not be as effective as a more tailored approach; and
• Industry best practices and robust investor diligence should be encouraged and viewed as an important complement to prudential regulation.
Baker’s testimony also touched on the vital role that hedge funds and other private pools of capital can play in assisting the Administration with its efforts to solve the banking crisis.
‘Hedge funds remain a significant source of private capital and can continue to play an important role in restoring liquidity and stability to our capital markets,’ Baker said. ‘MFA is supportive of the new Public Private Partnership Investment Program. We share Secretary Geithner’s commitment to promote efforts that will stabilise our financial markets and strengthen our nation’s economy. MFA and its members look forward to working with Secretary Geithner, Congressional leaders, and members of President Obama’s economic team on this and other important issues in order to achieve the shared objective of restoring stability and investor confidence in our financial markets.’
