Hedge funds – hard choices

Concerns are raised from time to time about the risk that hedge funds might be seen as attractive vehicles for money laundering purposes. This is primarily a consequence of three factors: (a) money goes in and out of hedge funds fairly steadily in the form of new subscriptions and redemptions of investors’ interests; (b) large amounts of money flow around hedge funds; and (c) such funds have traditionally been subject to limited or no regulatory oversight. In this article, Matthew Jones of Simmons & Simmons looks at the anti-money laundering obligations imposed on FSA-regulated firms in the context of UK-based hedge fund management and examines some of the more important issues which an FSA-regulated fund manager may face when attempting to comply with these obligations.

Matthew Jones, Professional Support Lawyer, Financial Markets Group, Simmons & Simmons

The legislation under which the fund manager has to work falls under three “strands” (see the Legislative background box), the first of which is the UK criminal legislation. The Money Laundering sections of the Proceeds of Crime Act 2002 are due to come into force early in 2003.The second strand comprises EU directives and resultant regulations which implement these into UK legislation. The second EU Money Laundering Directive will come into force in June 2003. The third strand so far as authorised firms are concerned is the FSA Handbook of Rules and Guidance. Underpinning each of these strands are the Joint Money Laundering Steering Group Guidance Notes (the “Guidance Notes”).