U.K.’s FSA Issues Latest Biannual Report Assessing Possible Sources of Systemic Risk from Hedge Funds

On February 29, 2012, the U.K. Financial Services Authority (FSA) released its latest biannual report entitled “Assessing the possible sources of systemic risk from hedge funds” (Report).  The Report detailed the results of two separate surveys conducted by the FSA in September 2011 and October 2011: the Hedge Fund Survey (HFS) and the Hedge Funds as Counterparties Survey (HFACS).  These surveys were designed to “assess potential systemic risks to financial stability from hedge funds including the nature of bank and prime broker interactions with this segment of the financial system.”  Among other things, the surveys assessed the gross exposures of hedge funds in the markets in which they trade as well as their use of different types of leverage in their trading activities.  Importantly, the FSA is likely to share the results of such surveys with other global regulatory authorities that oversee the activities of hedge fund managers, and such results may ultimately impact the type and amount of disclosures that hedge fund managers are required to make with respect to their hedge funds, including disclosures required by Form PF and pursuant to the EU Alternative Investment Fund Managers Directive.  This article highlights the key findings of the Report.

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