A consultation paper that proposes recommendations for reducing the risks associated with hedge funds was published Thursday by International Organization of Securities Commissions’ Technical Committee.

The report finds that the regulation of hedge funds varies greatly across jurisdictions, and it calls for a coordinated global effort to properly manage hedge fund-related risks. It reviews the regulatory issues presented by hedge funds, in particular focusing on the recent financial crisis, issues around systemic risk, and regulatory issues regarding conduct of business.

“The recent financial crisis is not a hedge fund crisis, and indeed regulators recognize that hedge funds contribute to market liquidity, price efficiency, risk distribution and global market integration. However recent market events have given governments and regulators the opportunity to consider the possible role hedge funds may play in amplifying crises through their trading strategies, reliance on leverage and the need to liquidate positions quickly,” noted Kathleen Casey, chairman of the Technical Committee.

“IOSCO believes that concerted, global regulatory action is required to appropriately and effectively mitigate the risks associated with hedge funds, along with stronger cooperation and information sharing arrangements between regulators,” Casey added. “This consultation paper solicits views on whether the preliminary recommendations provide regulators with the relevant guidance necessary to address the risks posed by hedge funds in their own jurisdictions while supporting a globally consistent approach.”

The report was prepared by the Technical Committee’s Task Force on Unregulated Financial Entities, which is co-chaired by the Consob of Italy and the UK’s Financial Services Authority.

The closing date for submissions to the consultation report is April 30.

IE