Hedge funds: Whistle-blowing or regulation?
At this month’s G20 summit, international regulation of financial services firms is certain to be the dominant debate. However, there are growing doubts that more rules will benefit the hedge fund industry.
UK prime minister Gordon Brown has made clear his views on hedge funds, saying that whatever name financial institutions go by, they should be supervised according to what they do. In March, G20 finance ministers agreed that hedge funds and their managers should be registered and have to "disclose appropriate information to assess the risks they pose". In the US, discussions are taking place at federal and state levels as to how hedge fund supervision should play out.
Phillip Goldstein, founder of Bulldog Investors and the man who successfully sued the SEC for illegally forcing hedge funds to register, is doubtful that additional regulation will help prevent fraud. "There is a misconception that more rules are required, but there are already rules in place," he says. "Fraud is already illegal and the rules do not prevent it. Enforce the rules we have before making new rules. If you have a wave of bank robberies, you don’t need even more video cameras and locks. You need better enforcement procedures."
Goldstein says resources at the SEC need to be redirected to focus on enforcing the rules that will be most effective. "There are many rules in place that are a waste of resources and time," he says.