The hedge fund phenomenon of the last few years has altered the way that financial markets work. Previously hedge funds were viewed as a necessary evil, offering liquidity in times of crisis. Now many of these funds are full scale investors, although they will always be opportunistic.

This Monday the FSA announced that it had broken new ground by taking enforcement action against a hedge fund manager for using inside information to deal in corporate bonds. “This is particularly important to hedge fund managers since it highlights the FSA's determination to take action against insider trading - and hedge funds can expect similar and tougher actions, particularly since last year the FSA published the findings of its visits to Hedge Fund Managers in Market Watch 24 to review the controls in place to mitigate the risk of market abuse and commented that it was ‘disappointed by some of what we saw’,” was the rather lengthy justification for action from the FSA.

Good to see the FSA showing its teeth, but this is surely the tip of the iceberg. Can it really be true that a hedge fund has never transgressed in this fashion? Surely not, but signifying intent is the first step for any regulator, taking action is the second step. Next, the FSA needs to keep up the fishing and get its gnashers ready for more action.

The regulators announcement concluded with: “Would you be interested in an interview or article on what steps hedge fund managers need to take to ensure their business and staff are not breaking the regulations, whether deliberately or inadvertently. This is particularly the case with hedge funds as they regularly receive privileged information.”

Everyone who has ever tried to manufacture a structured product based on hedge funds knows that the transparency of these funds is not always what they would like, which has a lot to with the receipt of privileged information. That will not change, but it may be worth looking out for the filing of presumably hopeful defences that regulations were breached “inadvertently”.