Managed Funds Association testimony to congress

A link to the MFA testimony to congress about hedge fund regulation can be found here.

An extract of the testimony is below:

MFA agrees with the SEC’s conclusion that it is no longer appropriate for hedge funds to be sold to natural persons who fall within today’s definition of Accredited Investors. MFA has long endorsed raising the financial standards in Regulation D as a means to address the SEC’s concerns about the “retailization” of hedge funds and the effect of inflation on income and net worth standards as they relate to the “accredited investor” definition.19 We have, however, some specific concerns about the proposed new Accredited Natural Person Rule, including its high degree of complexity and the potential for confusion on the part of investors, as well as added costs. MFA has explored these issues fully in our comment letter, dated March 9, 2007, to the SEC on the proposed rule. We ask Congress to consider ways to encourage greater consistency among financial sophistication standards across all regulatory agencies over which it has oversight for the benefit of investors and fund managers alike.

Regulators have also linked investor protection issues to regulations that require investment adviser registration with the SEC. With respect to the registration of hedge fund advisers, we believe the current statutory regime is sound. The vast majority of the top 100 hedge funds in the world are managed by SEC-registered advisers. In the past, mindful of the need of the SEC to gather data on the industry, we have proposed to the SEC that unregistered hedge fund advisers could be required to notify the SEC of its intention to operate as a hedge fund adviser in reliance on the relevant exemptions. Our proposal provided for a notice that could include certain basic census information about the hedge fund adviser determined to be necessary or appropriate. In the future, regulators may wish to re-visit our proposal.

Comments from our January Newsletter

Here is the Comments section of our January Asian regulatory newsletter:

January was a quiet month from a regulatory viewpoint in both Hong Kong and Singapore.

In December in Hong Kong there seemed to be a regulatory bottleneck in getting various applications processed. We noted that this eased in January. 2006 saw a large increase in the number of licensed entities in Hong Kong and we did not detect any decrease in activity as the year came to an end. A major regulatory challenge in 2007 will be ensuring that regulators can attract and retain sufficient expertise to handle both the new entrants and the new products and processes emerging from established firms.

As Hong Kong is still a great place to build and develop financial services, getting new entrants to the market quickly can only be good for the economy in general and the slow speed of application turn around in 2006 was by and large a drag on investment in Hong Kong.

We believe that there will be a temptation to tighten the Singapore regulatory environment in 2007 as such a buoyant economy breeds a little complacency on the business development side of the MAS. This is already being seen in the greater emphasis placed by the MAS on timely notification of changes at both licensed and exempt institutions.

MAS is sending warning letters to licensed individuals who fail to notify them of changes in personal details so internal education campaigns about the importance of these requirements should be commenced.

We believe that taxation on the activities of financial firms in both Singapore and Hong Kong will remain a policy focus in 2007 and proper planning and advice remains critical in this area.

2007 will be the year that many of the new changes in Japanese financial law come into effect. Coupled with the resurgence of the Japanese financial industry and the move towards greater integration of the Tokyo Stock Exchange with the NYSE, this year should be a challenging and exciting year for financial firms in Japan.

China and India are both predicting strong economic growth again in 2007. We expect to see a measured opening up of the Indian regulatory system and further liberalization and internationalization of the Chinese system.

In news outside the Asia Pacific Region, the Guernsey Financial Services Commission (“GFSC”) with regard to closed end funds has introduced a new regime. The process of gaining consent has now been streamlined to 3 days and the closed end funds that have received such consent will be known as “registered” funds.

In order to streamline this process the GFSC has placed reliance on the administration of the fund, requiring some certifications from the promoter and administrator of the fund.

Lastly this newsletter goes out just prior to Chinese New Year. We wish all of our readers a prosperous and healthy year of the pig. For those of you in Hong Kong – Kung Hei Fat Choi, and if you are in Singapore – Gong Xi Fai Cai.