Isda rejects call for more hedge fund oversight

The International Swaps and Derivatives Association today protested against calls from UK authorities for closer oversight of hedge funds, saying the market could be trusted to manage its own risk.

The Financial Services Authority warned in June that hedge funds could pose a particular risk to the financial markets because of their rapid growth in sectors such as derivatives. It recommended closer oversight of the funds to avoid possible crises in the future.

However, Isda argues that derivatives are not an asset class per se as they simply give investors a more efficient way of replicating a market position, and specific regulation for them is therefore inappropriate.

It also points out that defining hedge funds for regulatory purposes would not be easy – some but not all use derivatives – and that regulators would be better off concentrating on the dealers themselves.