The International Organization of Securities Commissions has published its final principles for hedge fund oversight.

IOSCO’s Technical Committee published a report Monday that sets out six basic principles that, it says, will enable securities regulators to address the risks posed by hedge funds.

The six principles are:

• funds and/or managers should face mandatory registration;
• registration should carry various regulatory requirements;
• prime brokers and banks that fund to hedge funds should also be subject to mandatory registration/regulation and supervision;
• hedge fund managers and prime brokers should provide information to heir regulators for systemic risk purposes;
• regulators should encourage best practices; and
• regulators should have the authority to co-operate and share information.

“Securities regulators recognize that the current crisis in financial markets is not a hedge fund driven event. Hedge funds contribute to market liquidity, price efficiency, risk distribution and global market integration. Nevertheless the crisis has given regulators the opportunity to consider the systemic role hedge funds may play and the way in which we deal with the regulatory risks they may pose to the oversight of markets and protection of investors,” said Kathleen Casey, chairman of the Technical Committee.

“The application of these principles, in a collective, cooperative and efficient way, can provide regulators with the tools to obtain sufficient, relevant information in order to address the regulatory and systemic risks posed by hedge funds,” she added.

The report, which was prepared by IOSCO’s Task Force on Unregulated Entities, recommends that all securities regulators apply the principles in their regulatory approaches. The Task Force, which was chaired by the CONSOB of Italy and the UK’s Financial Services Authority, will continue to work to support the implementation of these standards by its members and to deal with future regulatory issues that may arise in relation to hedge funds, IOSCO said.

IE