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FSCO proposes tighter hedge fund regulation

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US financial regulators are considering new proposals which would make it easier to more closely regulate non-bank financial institutions, including hedge funds, asset managers and insurers, according to a report by the Financial Times.

New guidance issued by the Financial Stability Oversight Council (FSOC) – a group of the top US financial regulators led by the Treasury department – has outlined how it would facilitate individual regulation of non-bank entities by the Federal Reserve depending on whether the “material financial distress” at an individual company, or the “nature, scope, size, scale, concentration, interconnectedness, or mix” of its activities posed a risk to the wider financial stability of the US economy.

A second proposal sets out the analytical framework the FSOC would use to identify, evaluate and respond to any potential risks.

While SEC boss Gary Gensler has endorsed the proposals, both the Investment Company Institute and the Managed Funds Association (MFA), a trade group representing the hedge funds industry, have voiced concerns. 

“The designation of a registered fund or fund manager would be the wrong answer,” said Eric Pan, chief executive of the Investment Company Institute, while MFA president and chief executive Bryan Corbett said: “Alternative asset managers do not pose a systemic risk and are already subject to the SEC’s robust regulatory regime”.

Both proposals will be subject to a public comment period before final rules are issued.

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