Post-Archegos Hedge Fund Financing Faces Close Scrutiny by BOE

The Bank of England in the City of London, U.K. (Photographer: Hollie Adams/Bloomberg)

Post-Archegos Hedge Fund Financing Faces Close Scrutiny by BOE


The Bank of England is considering closer scrutiny of the work banks carry out for hedge funds after the meltdown of Archegos Capital Management exposed gaps in oversight.

Banks’ prime brokerage desks, which trade on behalf of large clients such as hedge funds, need to be able to cover losses in good times and bad and should be a “low-risk business,” said Jon Hall, external member of the BOE’s Financial Policy Committee.

Hall also said in a speech Wednesday there may need to be higher margin requirements on derivatives to make sure that leveraged investors don’t destabilize markets.

“Hedge funds should manage their leverage and liquidity with the expectation that central banks will not come to their aid,” said Hall, who is a member of the committee charged with monitoring and limiting risks to the British financial system.

The BOE is the latest regulator to reckon with the fallout of Archegos after the Securities and Exchange Commission and U.S. banking regulators considered the need for more disclosure of risky trading positions. The implosion of Archegos in March has led to multibillion-dollar losses and a slew of senior departures from the banks that handled its business.

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