KPMG has warned the hedge fund industry to beware the unintended consequences of the announcement that HM Treasury will release a paper endorsing the regulation of ‘all important instit
KPMG has warned the hedge fund industry to beware the unintended consequences of the announcement that HM Treasury will release a paper endorsing the regulation of ‘all important institutions including hedge funds’.
Tom Brown, head of investment management, KPMG Europe, says: ‘The Chancellor’s announcement today endorsing the regulation of hedge funds, among other ‘important institutions’ is bound to raise the blood pressure of the industry. The devil is definitely in the detail here, but hedge funds are likely to be feeling harried and worried given all of the noise around regulation coming from the UK, Europe and at a global level.
‘At a high level we would expect regulation to focus, rightly, on codifying best practice across the industry, e.g. improving transparency and risk management or corporate governance. The danger, though, is that when high level principles get translated into rules and regulation, they may end up being damaging and creating unintended consequences. The industry needs to begin to think about how they will adapt to this new environment of increased scrutiny and potential business constraints.’
Meanwhile, PricewaterhouseCoopers argues that while greater transparency is a necessity it should not be at the cost of hasty and repetitive regulation that does not tackle the root of problems.
John Tattersall, partner, PricewaterhouseCoopers says: "PricewaterhouseCoopers welcomes greater transparency in hedge finds and the shadow banking sector, however what is important is that the Chancellor does not impose anti-competitive restrictions on individual hedge funds unless they are truly systemic. There is already regulation of the managers of these vehicles which gives the FSA significant powers over the sector in practice."
Rob Mellor, tax partner, PricewaterhouseCoopers, adds: "We are also expecting draft proposals from the EU Commission within the next week which will apply to all non-UCITS funds and fund managers in Europe. It is likely that these proposals will discuss issues like transparency and regulation. Therefore, we would expect any activity in the UK to be consistent with these EU proposals. The government needs to offer a competitive location from both a UK and an EU perspective."
