The Financial Services Authority is proposing a review of firms' derivatives risk management programs. The proposal is one of the results of a retail investments discussion paper, which has opened the door for a wider range of derivative-based investments to be sold to retail clients through regulated funds. The precise scale of the review by the U.K. regulator will be discussed further early next year, along with a range of other proposals connected to retail investment products.
Tim Cornick, partner at City law firm Macfarlanes, said the FSA is already thorough in reviewing risk management at regulated funds when they apply to use derivatives for purposes other than hedging. The risk management review will likely be a standardized extension of this. It is unlikely to put funds off applying to extend their derivatives use, he noted, but it may delay approval times. It currently takes around two months for U.K. funds to get approval to invest in derivatives.
