“The riskiest loans are outside the banking system.” Regulators fear hedge funds could trigger next financial crisis – Financial Services

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Kelley Howes spoke to MarketWatch about the potential risk of accumulation in hard-to-see parts of the US financial system after regulators imposed new rules meant to keep them safe during times of financial turmoil.

According to Kelley, regulators are “not even trying to hide the ball” and state in their proposed rule changes that the additional data they propose to collect will help with routine regulatory scrutiny of investment advisers.

Kelley argued that many of the proposed rule changes would significantly increase compliance costs for funds, costs that will ultimately be borne by pension funds and other investors who buy these products.

The new rules would require private funds to report certain “key events” such as extraordinary investment losses and large default and redemption events within 24 hours. Such rules would require funding to significantly expand their compliance departments to engage in “constant monitoring” to avoid violating new regulations, Kelley said.

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