The continuous monitoring of the UK’s 25 most influential hedge funds by the UK’s financial regulator, the Financial Services Authority, has...

The continuous monitoring of the UK’s 25 most influential hedge funds by the UK’s financial regulator, the Financial Services Authority, has recently begun.

The FSA is monitoring the funds it believes have the most potential to disrupt markets as part of its attempt to have a better understanding of the alternative investments sector.

The initiative was first raised in two discussion papers published in June of this year and has been the subject of strong opposition from some hedge fund managers and industry groups who are not in favour of tighter regulation.

The regulators are concerned about hedge fund impact on market volatility, financial stability and investor protection.

Industry groups such as the Alternative Investment Management Association point out that there is no evidence of a higher level of fraud within the industry than elsewhere and that the UK has, to date, had a clear record in this regard.

AIMA also rejects the suggestion that standards of systems and controls, compliance and risk management are lower among hedge fund managers than other, more highly regulated, firms.

Many specialist firms regard themselves as having “leap-frogged” more traditional providers into next-generation systems and investment techniques, partly because of superior profitability and partly because of the lack of legacy systems.