AIMA Responds To FCA’s Revised Name and Shame Proposals

After a busy week in the UAE and Saudi Arabia, we are staying closer to home for a while as a lot is happening in the UK.

This week, I discuss:

• FCA 'Name & Shame' II proposals: We don't just point out problems we bring solutions
• An easy win for the UK: Trade reporting needs urgent reform to align with other markets
• Facts over fear, please: Our reaction to Andrew Bailey's speech on leverage concerns

Read hedge fund letters here

P.S. Look out for a new podcast episode on Wednesday where I sit down with a long-time hedge fund reporter (who?!) to discuss how hedge funds can navigate the financial media.

Have a great week.

Drew Nicol, Associate Director, Research and Communications, AIMA

Disclaimer: All views expressed in this blog are my own, not AIMA's.

The FCA's revised 'Name and Shame' proposals pose as much a threat to firms as the original and undermine the UK's global competitiveness

Name and Shame 2.0: The UK FCA continues to risk significant harm to firms by publishing details of enforcement investigations at their outset.

Today, AIMA has filed a response to the FCA's revised Name and Shame proposals, outlining serious concerns and offering a constructive path forward to prevent undue damage to firms, individuals, and investors.

Beyond the shortcomings of the proposals, it remains the case that the FCA already has the sufficient power it needs to achieve its policy goal of better informing the market of its concerns. The problem has been its overly cautious legal approach to using those powers.

We agree with the House of Lords Financial Services Regulation Committee's concerns over the need for these proposals.

AIMA's response includes a constructive path forward where we advocate that the FCA's disclosure powers should be limited to cases where:

1. Unregulated firms' activities pose immediate mass-market harm
2. An investigation is already public knowledge
3. Consumer protection requires the publication of anonymous investigations where significant harm to retail clients and investors is likely

AIMA CEO Jack Inglis said: "The FCA's revised Name and Shame proposals have merely tweaked the wording of its widely criticised consultation and failed to address the core concerns raised by AIMA and the wider financial community."

"If implemented, these proposals still risk damaging the reputations of innocent firms and individuals and could make the UK a less attractive place to do business, directly undermining the UK Government's mandate to drive economic growth and strengthen the country's status as a global financial hub. We also side with the House of Lords Financial Services Regulation Committee's recent report, which urges the FCA not to proceed with the proposals as they stand."

AIMA is calling on the UK FCA to free buy-side firms from the burden of unnecessary reporting requirements.

Last week, I mentioned that AIMA was responding to the FCA’s discussion paper on improving the UK transaction reporting regime.

AIMA is urging the FCA to reform its transaction reporting proposals to align the UK with global standards and cut unnecessary costs for investors.

With the UK government focused on economic competitiveness and Chancellor Rachel Reeves calling on regulators to help unlock growth, this is a critical opportunity for change.

The response has now been filed, and in it, we make the case that:

1. The cost to buy-side firms associated with reporting their trades to the FCA – which can run to millions of pounds annually – vastly outweighs the value to the FCA of the information it obtains.
2. Under our proposed alternative – a single-sided reporting model, where the broker reports client-facing transactions – the FCA would still have detailed insight into trading activity and the power to request further information from firms.
3. Some UK buy-side firms don’t have to report transactions because of their operating structure – this approach can and should be extended to all buy-side firms.
4. Implementing a single-sided reporting model would bring the UK in line with the US, enhancing the UK’s attractiveness as a global hub for international firms and investors.

AIMA calls for fact over fear with hedge fund concerns

In a recent speech, Bank of England Governor Andrew Bailey outlined four key concerns about hedge funds, particularly around multi-manage strategies, suggesting they:

• Contribute to systemic illiquidity through deleveraging
• Increase concentration and interconnectedness risks
• Exhibit herd behaviour
• Operate with opacity

While we respect the importance of discussions on financial stability, the evidence does not support these claims. A closer look at the data tells a different story:

• The BoE’s stress tests show hedge funds react diversely to shocks, not as a herd
• Prime brokers already provide central banks with detailed portfolio data. Better regulatory data-sharing, not more regulation, is needed
• Leading multi-strategy funds have shown resilience in crises, including in 2008 and 2022
• Compared to central banks, mutual funds, and pension funds, hedge funds only played a minor role in the March 2020 US Treasury sell-off.

AIMA’s view: Instead of focusing on hedge funds, we should consider ways to enhance market liquidity capacity during stress periods.

About AIMA:

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,100 corporate members in over 60 countries. AIMA's fund manager members collectively manage more than US$3 trillion in hedge fund and private credit assets.