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FSA decides against relaxing hedge rules

The FSA has decided not to relax rules governing the marketing of hedge funds after its consultation found no desire among IFAs and providers to sell them to retail investors.

The regulator, which currently does not regulate long/short products, issued a discussion paper in August 2002 asking the industry whether access to hedge funds should be widened. But following feedback, the FSA says it has decided that the existing regime provides the right balance of consumer protection and access.

Director of markets and exchanges Gay Huey Evans says: “Generally, the feedback we received did not indicate a great desire on the part of hedge funds or investment advisers to provide or sell hedge funds as retail products. Nor was there significant demand from retail investors.”

Under the existing regime, hedge funds cannot be marketed and sold to retail investors. Only some financial advisers are authorised to recommend them.

Huey Evans says the FSA will be keeping the regulatory status of schemes under review and will be discussing with the industry the possibility of allowing a wider range of funds to be brought under the retail regime. She says it will be undertaking some work on the adequacy of systems and controls in hedge fund managers.

She says: “Hedge fund managers should be properly qualified and controlled when undertaking investment activities for their client fund. Any hedge fund manager in breach of these standards would be in breach of these rules.”

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