Hedge Fund Regulation a Step Closer

The National Treasury and the Financial Services Board (FSB) published a Joint media statement outlining their preliminary response to stakeholder comments on proposals released in September 2012 for regulating hedge funds.

Annexure A, referred to in the statement, contains full details of the responses received, and is published on the FSB website under the CIS section.

The media statement contains a summary of comments received, and the Regulator’s responses thereto. We list some of the more relevant ones below:

The Distinction between Retail and Restricted Hedge Funds

A concern was raised regarding the distinction between Retail and Restricted Hedge Funds. It is now proposed that Restricted Hedge Funds be renamed Qualified Investor Hedge Funds (“QIHF”), to accurately reflect their nature and the commensurate regulation. Retail Hedge Funds are envisaged to comply with stricter regulation to ensure commensurate protection of ordinary investors, while the Restricted (Qualified Investor) Hedge Funds will target qualified investors, with commensurate and proportionate regulation, and focus on systemic risk reporting, monitoring and adequate disclosure to investors.

Annexure B referred to in the media statement provides an organogram of the proposed changes.

Process going forward

A drafting panel constituted by the FSB, Treasury, experts and relevant industry associations will prepare a draft of the Regulations, to be issued in the first quarter of 2014 for public comments. The final Regulations, with the relevant CISCA Ministerial declaration, are envisaged to be finalised by the second quarter of the year.

The Regulations will take into consideration the relative size of the industry in South Africa, the current trends in the local industry and the type of hedge funds operated. A transitional period for implementation will also be considered.

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