UK: London hedge funds told to prepare for FCA spot checks.

Added on 05/03/2019

As published on, Monday 4th March, 2019.


The Financial Conduct Authority has ordered London’s hedge funds to prepare for stringent tests of their financial-crime controls later this month, as part of a wider clampdown on fraudulent activity in the City.

The FCA sent a letter to senior executives at hedge funds in London on February 28 warning them to expect a visit from the regulator’s staff in late March or early April, according to Optima Partners, a regulatory consultancy.

FCA staff will spend a half-day assessing the funds’ ability to identify and police potential breaches of the UK’s money-laundering and financial sanctions rules by their clients, the letter said. The assessment could include interviews with senior staff about their firm’s anti-money-laundering systems, and a run-through of those procedures.

Hedge fund managers receiving the letter have been told they have a week, or until March 7, to provide the FCA with the information they hold on clients they deem to be most at risk of conducting fraudulent activity.

The watchdog has given the funds a further two weeks to gather additional information, including copies of their most recent internal reports on money-laundering controls, and details of their policies on anti-money-laundering and financial sanctions.

Greg Worsfold, a partner in the regulation and compliance practice at Optima, said four of his firm’s hedge fund clients had received the FCA’s letter.

He expected the regulator would probably take action against senior management found to be unaware of their firms’ anti-financial crime policies or deemed not to be taking the risks of such activity seriously enough.

The FCA announced plans to focus on bolstering City companies’ anti-money-laundering controls in its last annual business plan, published in April 2018.

Optima said the letter was part of the FCA’s “routine work” against money-laundering, but Worsfold added: “The more the FCA sets out its expectation, the less sympathetic they are likely to be with firms [who aren’t meeting expectations].”

There have been a number of high-profile scandals relating to financial crime in the UK’s hedge fund industry in recent years. In 2015, Magnus Peterson was convicted of multiple counts of forgery and fraud, six years after the UK-based hedge fund he founded, Weavering Capital, collapsed, losing investors £350m.

Bosses at Heather Capital, a $600m property-lending fund, were also subject to a fraud inquiry after the firm’s collapse in 2010.

The FCA declined to comment.