(New York) The US Federal Reserve (Fed), which oversees the banking sector, issued prudent management guidelines for hedge funds on Friday after the US fund Archegos scandal, which imploded in March, causing massive losses in the area.
“Banks are expected to demonstrate due diligence in their dealings with a customer and take fully into account the risks that this relationship may pose to the bank,” the Fed said in a statement.
The Central Bank dictates to banking organizations, with large portfolios of derivatives and relationships with investment funds, a series of prudential measures to be observed in order to properly assess the risks in the positions of investment funds.
The failure in March of Archegos Capital Management, a leveraged hedge fund, resulted in losses of more than $ 10 billion at several major banks, mainly outside the United States.
Credit Suisse had been the most affected bank. Archegos, who managed the fortune of businessman Bill Hwang, was unable to inject money back to cover positions in derivatives, which triggered a massive sell-off of shares to Wall Street.
The Fed’s expectations now require the big banks to step up risk assessment with partner hedge funds.
“The Federal Reserve is concerned about the practices of companies that accept incomplete and unverified information, especially with regard to the fund’s strategy, its concentrations and its relations with other market players,” says the Board of Directors of the Central Bank.
The Fed reminds banks “that poor communication and risk management rules as well as the fragmentation of surveillance systems hamper the ability of firms to identify and manage risks.”