FSA says EU hedge fund rules carry significant risk

EU plans for regulating the hedge fund industry still carry “significant risks”, the Financial Services Authority (FSA) warned yesterday, even though many of the stricter rules have been toned down.

“I would not underestimate the significant risks that still exist in this draft directive. It could still go badly wrong in some important areas,” Dan Waters, sector leader for asset management at the FSA, said a summit on hedge funds.

The draft directive, which is highly unpopular in the City, was introduced last April and proposes such measures as controls on leverage, more data being submitted to regulators, and managers in non-EU countries meeting certain requirements before they can sell funds in the European Union. After nine months of debate, some concessions have been made, including letting member states decide whether non-EU managers can sell their funds in that country.