WASHINGTON (Thomson Financial) - Members of the House today said they are worried about whether hedge funds are sufficiently regulated, but nonetheless appeared content to leave the issue in the hands of US regulators, as none warned of any pending legislation in this area.
Members of the House Financial Services Committee at times asked key US financial regulators whether they would support legislation requiring new steps to reduce financial market risk. But each time regulators said they are already constantly assessing whether to adjust their existing guidance, an answer that seemed to satisfy members.
Toward the end of the hearing, Committee Chairman Barney Frank took solace in Treasury Undersecretary Robert Steel's comment that the absence of new regulatory guidance is "not an endorsement of the status quo" by US regulators.
The president's working group (PWG) on financial markets put forward new guidance in February aimed at mitigating systemic risk in financial markets and protecting investors, and Steel said regulators are now working to ensure market participants adopt these guidelines.
"We have not given a green light for the participants in the asset management industry to continue with business as usual," he said. Instead, he said the next step for regulators is to ensure market participants "adopt and use these principles and guidelines."
Frank did ask during the hearing whether unregistered hedge funds should be required to retain all documentation that might reveal insider trading after an investigation is launched. However, Erik Sirri of the Securities and Exchange Commission said this requirement could prompt some hedge funds to move offshore.
Frank said industry representatives he has spoken with did not express that sentiment, but did not press the issue further at the hearing or suggest legislation in this area may be pending.
Frank also asked whether something should be done to address problems related to the fact that companies register with some US authorities but not others. In response, Steel said this is an issue that Treasury Secretary Henry Paulson wants to examine.
The ranking member of the committee, Spencer Bachus, said he does not believe Congress could pass any law that would "stabilize" the market at this point. He also said some bills, like those that would raise taxes on private equity partnerships, would likely destabilize markets.
Another member, Paul Kanjorski, indicated that he would prefer legislation that explicitly authorizes the PWG to create regulatory guidance for hedge funds, but he also did not say he would propose legislation for that purpose. The PWG is an inter-agency task force that was set up under Executive Order in 1988.
pete.kasperowicz@thomson.com
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