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Hedge funds attract additional FCA scrutiny after UK pension crisis

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Hedge funds have are to come under increased scrutiny from the Financial Conduct Authority, the UK financial markets watchdog following the pension crisis in late September, according to a report by Reuters.

Hedge funds have are to come under increased scrutiny from the Financial Conduct Authority (FCA), the UK financial markets watchdog following the pension crisis in late September, according to a report by Reuters.

The report cites the FCA’s chief executive as saying on Wednesday that it is now actively working with overseas regulators to examine stresses in the global financial system, including the activity of leveraged hedge funds.

The increased scrutiny comes after the Bank of England was forced to intervene in Spetember to stabilise the UK bond market after then chancellor Kwasi Kwarteng’s radical – but unfunded – tax-cutting sparked a jump in gilt yield yields. Defined benefit pension schemes were forced to raise cash quickly to meet margin calls on liability-driven investment (LDI) derivatives positions. 

Addressing a a parliamentary pensions committee on Wednesday, FCA chief executive Nikhil Rathi  said: “We’re working with our colleagues overseas on leveraged hedge funds or some of the other risks that we see in markets around the world.”

Earlier this week, the Bank of England announced that investment funds and other non-bank financial institutions will face their first “stress test” next year to apply lessons learned from the crisis. 

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