IOSCO consultation report on regulatory environment for Hedge Funds

06 March 2006




In February 2005 the IOSCO Technical Committee mandated its Standing Committee on Investment Management to update its report on “Regulatory and Investor Protection Issues arising from the Participation by Retail Investors in Hedge funds”. The goal of this mandate was to see if any additional work on hedge funds should be done by IOSCO.

Four significant conclusions could be drawn from a questionnaire issued on the topic:

  • None of the responding members has adopted a formal, legal definition of the term “hedge fund.”
  • Hedge fund advisers are regulated in most of the responding jurisdictions.
  • Few jurisdictions report any significant “retailization” of hedge funds at this point in time, but some regulators anticipate that this is changing or may change in the future.
  • There have been some incidents of fraud relating to hedge funds in the responding jurisdictions, with the extent of fraud low in some jurisdictions but varying in member jurisdictions.

    In addition, some members noted that their regulatory regime for hedge funds was new and that as a result, there was no data on hedge fund fraud. Member jurisdictions continue to monitor for fraud in connection with hedge funds.

    Significantly, there have been developments of interest in terms of how hedge funds are regulated in many jurisdictions since the publication of the 2003 TC Report. The way that member jurisdictions are regulating hedge funds differ and many jurisdictions are still developing their regulations. In most of the responding member jurisdictions, hedge fund advisers are, or soon will be, regulated.

    Some member jurisdictions prefer to regulate the adviser to the hedge fund, rather than the fund itself. Many member jurisdictions regulate both the hedge fund adviser and the hedge fund. Various member jurisdictions regulate the distribution of hedge funds, and/or the information that the hedge funds provide to customers, and/or information provided to regulators regarding fund finances. These various forms of regulation are worth reviewing more precisely.

    Deadline for comments is 31 May 2006.

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