G-7 Plan Might Entail More Risk Disclosure

The Group of 7 leading industrial countries is hoping to boost financial-system risk disclosure as part of a program aimed at heading off new market and economic crises.

The plan could entail more disclosure from secretive hedge funds--high-powered, fast-moving investment funds for wealthy individuals and institutions, which have gotten much of the blame for world market turmoil this year.

While the main G-7 agreement on International Monetary Fund reform focuses on creating a new IMF credit line, the G-7 also called for cooperation among nations to “examine the question of appropriate transparency and disclosure standards for private sector financial institutions involved in international capital flows,” including investment banks and hedge funds.

“I don’t think there’s going to be any specific proposals to curb capital flows or currency movements,” said Nick Parsons, currency strategist at Paribas Capital Markets.

Still, he said the G-7 is recognizing “the defects of the current system,” as opportunistic capital moves at lightning speed across borders, destabilizing markets.

Exactly how the G-7 would get more disclosure from largely unregulated hedge funds isn’t clear.

British Finance Minister Gordon Brown noted it is difficult to deal with hedge funds because they can be based anywhere in the world.

The G-7 made reference to that by stating that “appropriate means should be sought to encourage offshore centers to comply with internationally agreed standards” of disclosure.

Brown said that new disclosure rules could focus on “the institutions that are leaving the funds with hedge funds as well as with hedge funds themselves.” But he did not offer further details.