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regulatory terminologies January 22, 2008

Posted by Bradley in : Uncategorized , trackback

From Appendix D to the (UK) Hedge Fund Working Group‘s publication, Best Practice Standards and their Future Development (analysing the legal status of the standards) I learned that the standards constitute industry guidance which is not confirmed by the FSA and which therefore doesn’t establish “sturdy breakwaters”:

FSA confirmed industry guidance will be accorded “sturdy breakwater” status. This means that the FSA will not take action against any regulated firm that has adhered to confirmed industry guidance in force at the relevant time. However, the absence of “sturdy breakwater” status for the Standards does not mean that we believe they are in any way “sub-standard” for their purpose. Real practical protection for managers should we feel be provided in that where all relevant firms were acting on the basis that the Standards were reasonable, this should in our view inform any proper interpretation of that the FSA Principles required.

The standards seem to be designed to help firms avoid civil liability rather than regulatory enforcement.

The FSA’s November 2006 Discussion Paper on Industry Guidance distinguishes between regulatory safe harbours and sturdy breakwaters, and, it appears, there is industry guidance which does not establish even sturdy breakwaters. Surely this sort of guidance requires a nautical designation too? Perhaps a floating breakwater? A shipping lane? A buoy? Or a levee?

[Later: Mario Draghi, the Chairman of the Financial Stability Forum, said he liked the document.]

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