Kindler, Gentler U.K.? Maybe Not

The U.K.’s softer approach toward regulating hedge funds may be getting a little tougher.

The U.K.’s softer approach toward regulating hedge funds may be getting a little tougher. The combination of a warning signal from the Bank of England that hedge funds may be at the center of any future financial crisis and increasing pressure on countries around the world to clamp down on hedge funds has inspired the U.K.’s Treasury to announce that it will more rigorously review the way the Brits currently monitor hedge funds across the pond – even though in recent months the U.K. has said it will not introduce new regulations. Famous recent failures such as that of Amaranth Advisors have also helped prod the agency to look more carefully at hedge fund reg, according to the Times of London, adding that Treasury is still not convinced that the industry needs tighter supervision. Earlier this week, BofE Deputy Governor Sir John Grieve minced no words in warning about hedge funds’ “aggressive risk-taking,” describing the tremendous growth of HFs in the U.K. in what he termed a “benign environment,” where the risk management of firms hasn’t been “tested by a severe shock” – yet. Sir John, the Times reports, found “some comfort” in that Amaranth’s failure caused nary a ripple, but added, “We should not conclude that it will be as smooth and easy next time – and of course there will be a next time.” Treasury is expected to announce within coming months the nature of its stricter oversight of hedge funds.