By Philippa Allen
Speaking during a panel at the AsiaHedge Conference today, Ashley Alder, CEO of the SFC in Hong Kong made several interesting comments on his take on the regulatory issues facing hedge funds post financial crisis.
He said it is clear that internationally regulators are concerned about hedge funds becoming a shadow banking system that had potential to be systemically risky to the international marketplace particularly in credit transformation and collateral flows. At this stage regulators are still grappling to identify this risk and remain interested in information gathering from the industry.
IOSCO is planning another hedge fund survey in September 2012 similar to its previous exercise, but this time including the US. The previous exclusion of US based funds and managers from the last survey meant that only 30% of global hedge fund assets were considered.
IOSCO is running a project to report to the Financial Stability Board by the autumn to more specifically quantify the systemic risks, if any, posed by hedge funds to the financial system.
These initiatives are covering a different regulatory concern (i.e. that of risk) than industry standard setting bodies like the Hedge Fund Standards Board as the role of such groups is to set best practice for the conduct of hedge funds towards their investors.
In relation to Hong Kong specifically, Alder was at pains to point out that criticism from governments internationally that Asia was creating potential for regulatory arbitrage was not accurate or fair. The criticisms are being given voice when Asian financial centers like Hong Kong push back on changing local legislation to match legislation proposed in the US or Europe. Given the different political situation in Asia and the different impact the financial crisis had on its banks, it is not appropriate in all cases for Asia to follow suit. This reflects the views of the earlier speaker Julia Leung from Financial Services and Treasury who made the point that while the Hong Kong Government is willing to work towards convergence with the US and the EU, it is not looking for absolute equality.
The SFC is working on its bilateral relationships with other regulators. With the SEC it is preparing for joint inspections of dual registered Hong Kong firms; in Europe the SFC has this month commenced work on having Hong Kong passported by ESMA as an acceptable jurisdiction for AIMD purposes.
The industry will no doubt be delighted to hear that the SFC is keen to move the local licensing department towards a substance over form approach albeit Adler himself noted this was a work in progress. He also acknowledged the resourcing issue that the SFC and licensing in particular are facing.
Finally he was keen to put paid to rest the speculation that the Hong Kong based RQFII managers were given preferential treatment and received their Type 9 licenses faster than normal. In fact these licence applications had been submitted to the SFC up to 12 months before the final PRC rules were released in December 2011 by SAFE and the SFC was simply waiting for that green light before moving from approvals in principal to granting their licenses.