christian noyer : a central banker ’ s personal perspective on hedge funds introductory speech by mr christian noyer, governor of the bank of france, at conference on hedge funds, washington dc, 15 april 2007. * * * thank you all for coming. it's a pleasure and a privilege to have you all here to day. special thanks to the imf and john lipsky for organizing this event for us and with us. the purpose of our meeting is to present the special issue of our financial stability review on hedge funds. so i want to say a few words on why we embarked on such a project and how we did it. as you noticed, this issue of our review is mostly based on external contributions. some authors are with me to day and i also want to thank them. we are very happy that we could assemble such an eminent roster of contributors. let me say from the outset that we did not intend to reach a conclusion at this stage. the international community is working on this issue, in particular in the framework of the fsf. the main question is : how can we best reconcile keeping the positive inputs of this activity for financial markets functioning and innovation, while keeping the risks that may be generated for financial stability to a minimum. this is why there is a debate on hedge funds, which we think, is legitimate. we think it is our role as central banks to foster this debate, because we have that ultimate responsibility for financial stability. this being said, i may give some personal perspective and make, as an introduction a few remarks. why are we having this debate at the moment? if we look back five or six years ago, we can see at least three major changes that have contributed to a renewed interest in hedge funds activities : first, the sheer size and very fast growth of their activities and portfolios which have made them major participants in financial markets ( 40 % of the turnover of some major stock exchanges ; between 25 % and 50 % of credit derivatives turnover according to various estimates ). second, retail investors ( as opposed to high net worth individuals ) have – directly or indirectly – got increasingly exposed to hedge fund type investment, and, of course, risk. sometimes, such exposure might be not even known to the individual investor ( e. g. through pension funds ). i was surprised to learn that, in my own country, more than 20 billions euros are to day invested in funds of hedge funds or similar instruments. and third, fast and far

voices facilitating identity theft, etc. the list of threats is long, even though technology can also be used to counter these attacks. second, and more generally, the growing deployment of ai could further increase the'technical interconnections'within the financial system, where technologies, systems and suppliers are intertwined in an increasingly complex set of interdependencies, making it easier to transfer a vulnerability from one system to another. this is one of the key reasons behind the european dora regulation, which will come into force in january 2025. this brings me to the regulatory framework for ai in the financial sector. 3 / faced with the risks of ai, and to enable the financial sector to take full advantage of its opportunities, we need to build effective regulation. the move towards a regulatory framework has already begun : with its ai act, the european union has adopted the world's first legal framework and laid the foundations for'trustworthy ai '. to this end, the regulation distinguishes between several levels of risk, within which'high risks'- which form the core of the text - will apply to the financial sector in at least two respects : customer worthiness assessment when granting credit to individuals ; and the assessment and pricing of health and life insurance. although the text focuses above all on the fundamental rights of citizens, the financial supervisor must also take account of other objectives : financial stability, aml / cft, etc. the european legislator has clearly seen the need to link the cross - sectoral objectives of the text with the specific objectives of financial regulation : it has therefore entrusted the role of'market surveillance authority to the supervisory authorities of the financial sector for financial use cases. this is a wise choice, as it will allow the best possible coordination of the implementation of sectoral and crosssectoral legislation, with the help - when the time comes - of guidelines from the european supervisory authorities. in any event, on the basis of the work it has been carrying out on ai for several years now, the acpr is ready to exercise the new role that the ai act is set to confer on it. 3 / 4 bis - central bankers'speeches however, we do not intend to perform this role in isolation : on the contrary, i believe we need to develop effective coordination to provide a framework for the use of ai. first, at the european level, where i would like to see the rapid creation of a common methodology for auditing ai systems in the financial sector