HEDGE FUNDS ARE creating a "major risk" to global financial stability, although there may be little that can be done to tackle the problem, the European Central Bank suggested yesterday.
According to this morning's Times, the ECB sounded a note of alarm over the possible repercussions from any collapse of a hedge fund, or group of funds, in one of the starkest warnings yet from an official institution over the role of the burgeoning but secretive industry.
In its twice-yearly Financial Stability Review, the Frankfurt-based central bank also raised serious concerns over many hedge funds’ growing use of “increasingly similar” trading strategies.
It argued this trend could lead to worldwide liquidity problems if a financial or economic shock led funds simultaneously to attempt to alter their trading positions.
The ECB suggested the herd instinct among hedge funds posed “a major risk for financial stability, which warrants close monitoring, despite the essential lack of any possible remedies”.
In an assessment which underlined its anxieties over the spread of hedge funds, the ECB also said it believed the “idiosyncratic collapse” of a key fund, or of a cluster of smaller funds, posed as great a risk to financial stability as a bird flu pandemic. It said both raised the threat of significant disruption to financial markets.
But despite its concerns, the ECB stopped short of calling for more direct hedge fund regulation. It said it believed indirect regulation through regulated financial institutions was still the best course.
SUSPECTED ILLEGAL immigrants who have found a job will no longer be automatically issued with a national insurance number after ministers agreed to rush through legislation to close an embarrassing legal loophole, reports The Financial Times.
Urgent changes to the employment regulations will be introduced within six weeks after it emerged Jobcentre staff had been instructed to give NI numbers to foreigners already in employment even if staff suspected they were not entitled to work in this country. NI numbers are used to track an employee's tax status and eligibility for some benefits, and are regarded by employers as reasonable proof of eligibility to work.
However, business is unhappy that under the 1996 and 2006 immigration acts, they must apply more onerous checks and face hefty fines and criminal charges if they knowingly employ an illegal immigrant.
And business groups welcomed the attempt to shore up confidence in the national insurance register in the hope it would reduce the burden on employers of policing immigrant labour. Anthony Thompson, of the CBI employers' group, said companies faced real difficulties in vetting employees as the apparent ease with which national insurance numbers can be obtained makes an already complex situation even more complicated.
Stephen Alambritis, of the Federation of Small Businesses, said the next step was to persuade the government that an NI number conferred the right to work in the same way as a social security number in the US, which he said would stop the push towards employers acting as the government's immigration officers.
However, the Department for Work and Pensions said the NI number rule change "doesn't slacken the onus on employers at all". The government would move swiftly to remove an "anomaly" in the system whereby an unemployed foreign national applying for an NI number would be subject to rigorous immigration status checks while a suspected illegal immigrant with a job would be awarded it automatically.
ROYAL BANK OF SCOTLAND and HBOS are understood to have refused to cut penalties for late credit card payments by as much as their rivals - despite intense pressure from the Office of Fair Trading (OFT), reports The Scotsman.
Barclays, Lloyds TSB and HSBC have all agreed to nearly halve the charges from up to £25 to £12 after the consumer watchdog said the industry was overcharging customers. Both RBS and HBOS refused to comment, but sources close to the matter said while the banks had agreed to make some form of concession, it fell short of the demanded sum.
An OFT spokeswoman said banks were imposing charges which far outweighed the cost of administrating a delayed payment, and were using the proceeds to subsidise other areas such as interest-free periods. She added from data accumulated by the watchdog, the acceptable level of penalty was £12.
Lloyds, the UK's fifth biggest bank and the biggest unsecured lender, agreed to cut its penalty on credit card default to £12 from £20 from 28 June. HSBC later said it would do the same.
Barclaycard, which has more than 11 million UK cardholders, said it would cut its default charge to £12 from 1 August - but attracted controversy by saying it would increase the interest rates for cash advances.
Sources close to RBS and HBOS ruled out similar moves if they stuck with penalty charges higher than £12. The two firms made combined profits of just under £13bn in 2005.
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Despite improved risk appetite
FOS award limit increase
Relates to 136 million transaction reports
Ceremony will take place 13 November