G7 Forum Mulls Setting Compulsory Hedge Fund Disclosure Requirements

SINGAPORE--Large hedge funds should be required to disclose their capital size and the amount of borrowed money at their disposal, according to the Financial Stability Forum that met in Singapore over the weekend of March 24 and 25.

The forum--which comprises finance regulators from G7 counties as well as representatives from major developing nations and multinational finance organizations, including the International Monetary Fund--said such disclosure would stabilize the global economy and prevent financial crises like those that hit Asia in 1997 and 1998.

While the forum stopped short of recommending direct regulation of hedge funds, delegates warned that they would not discard the idea entirely.

"What we favour is a requirement for disclosure of the total size of the funds, and the leverage," said Howard Davis, chairman of the United Kingdom Financial Services Authority.

"But we recognize that that is based on a belief that as long as you can shine light on this industry, the market will discipline itself. And we recognize that that may not happen. Therefore we keep direct regulation on the table."

The group held discussions in Singapore and released the findings of three task forces created last year to study ways to improve the global financial architecture.

The forum’s chairman is Andrew Crockett, general manager of the Bank for International Settlements in Switzerland.

The forum also recommended a code of good practice for hedge funds and other highly leveraged institutions operating in countries with small or medium sized markets, as such firms have been blamed for destabilizing national economies.

Davies praised US legislators’ proposals to require disclosure from hedge funds and other highly leveraged institutions, and called for complementary provisions elsewhere.