The UK Financial Services Authority is beefing up its regulation of hedge funds by appointing the head of a six-person supervisory team to watch over the activities of the $1 trillion (€800bn) global industry.

The financial regulator has also conducted a secret investigation into prime brokers, which finance hedge funds' investments. This followed a review of the brokers the FSA conducted in June. At the time, it said it was satisfied there was no excess lending to hedge funds, but it returned unexpectedly for a second inspection to check bankers were telling the truth about their activities.