Following a high-profile campaign by the Financial Services Authority (FSA)– an independent regulator of UK finance – to clean up the industry, hedge fund managers are becoming increasingly anxious that even the smallest mistakes and irregularities could cause hefty fines to be issued and legal complaints filed against them.
Although hedge fund manager’s professional indemnity policies had to cope with minor financial setbacks, reputational damage and disruption to business due to FSA interference in the past, the current climate is much more hazardous for those in the industry.
In March of this year, one of the UK’s wealthiest hedge fund managers, Louis Bacon, was raided in an operation by the Serious Organised Crime Agency (SOCA), resulting in seven high-profile arrests in total. The crime is insider dealing, which both SOCA and the FSA claim is an extremely serious issue.
Even if not engaged in criminal activities, many top-level hedge fund managers are now worried that even minor breaches may be dealt with more severely, resulting in huge fines for the companies involved. Industry experts claim FSA and SOCA attention is being focused on the accidental release of information, surveillance techniques, and transaction reporting.
As regulatory authorities are advising financial companies to see the high-profile legal cases against Goldman Sachs and hedge fund managers Galleon Group as a warning, there has never been a more crucial time to take out professional indemnity insurance.