Herbert Smith has set up a team that will spend time in-house with hedge fund clients to ensure they do not commit market abuse.
The so-called healthcheck, which is being offered for a fixed-fee that is calculated on a case by case basis, is designed to tackle abuses such as insider trading and ‘trash and cash’ dealing, where traders spread false rumours to push down share prices then buy positions at the cheaper rate.
The scheme is led by financial services regulation partners Patrick Buckingham and Martyn Hopper, a former member of the Financial Services Authority’s (FSA) enforcement team.
Hopper said: “Hedge fund managers are in a pivotal place in the market. They are often on the receiving end of discussions that can land them with inside information.”
The healthcheck consists of six stages, from analysing the effectiveness of internal safeguards like Chinese walls to drawing up and implementing a plan to bring controls up to speed.
The first stage of the healthcheck, a briefing on FSA regulations and basic systems analysis, is being offered to hedge fund managers free of charge. A fixed quote is then offered for the rest of the service.
Serious cases of market abuse can lead to a fund manager’s FSA permissions being withdrawn, a heavy fine or even a jail-term of up to seven years.
Last year the FSA visited hedge funds and published a report on internal systems for dealing with market abuse.
Buckingham said: “The FSA was clearly not impressed by what it saw at some of the hedge funds it visited. They are saying, get yourself in order or we will be after you.”