U.K. FSA Expects High-Level Dialogues with U.S. SEC

LONDON–Hector Sants, managing director, wholesale and institutional markets division of the U.K. Financial Services Authority, addressed a conference the FSA is hosting on the issues facing the asset management industry as well as its regulators.

He expressed his pleasure that Susan Nash, of the Securities and Exchange Commission, was at the conference, and he said that the SEC and the FSA are facing many common challenges. Ms. Nash is associate director of the SEC’s division of investment management.

After mentioning the recent market-timing scandals within the mutual funds industry in the United States, Mr. Sants said Tuesday that “also, more recent SEC proposals for the mandatory registration of hedge fund managers above a certain size are being viewed with interest from this side of the Atlantic … [and] the SEC are also interested in our proposals for soft commission and unbundling, so we envisage a high level of dialogue and cooperation between the FSA/SEC going forward on a number of sector issues.”

As to hedge funds, Mr. Sants observed that the industry is growing because it has successfully delivered a positive absolute return to its investors despite the hostile market environment of recent years. This success, along with changes in regulations in other European jurisdictions, is leading the FSA to reexamine its current prohibition on the marketing of hedge funds to private customers.

On a related point, the FSA is conducting a survey of prime brokers to get a feel for the potential effect of hedge funds on market stability given their use of leverage and illiquid assets.

“There is also the potential for conflicts of interest at prime brokers where profitability is increasingly linked to hedge fund trading activities,” he said.