The growth of hedge funds has led the Turner Review to state, given that most hedge fund centers are based offshore, global regulation must be set in place before the sector becomes to big to fail.
Lord Turner, chairman of the UK FSA, was asked by the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms.
The report states: “If it ever did become appropriate to extend prudential regulation to hedge funds, the issue of the geographic coverage of regulation could become important, given that many hedge funds are legally domiciled, among other reasons for tax purposes, in offshore financial centers, even if the asset managers are legally domiciled and located in the UK, the US, or Switzerland.
“Global agreement on regulatory priorities should therefore include the principle that offshore centers must be brought within the ambit of internationally agreed financial regulation (whether relating to banking, insurance or any other financial sector).”