The Securities and Exchange Commission, which has actively pursued actions by American banks and other financial institutions overseas, is broadening its reach by asserting its purview to foreign hedge fund managers.
Agency employees are set to fan out across upscale Mayfair, home to some of London's biggest hedge funds, this week, paying visits to more than a dozen hedge fund managers registered with the S.E.C. to determine whether they are in compliance with American regulations.
The move reflects the S.E.C.'s new powers since the financial crisis, particularly under the Dodd-Frank Act of 2010, which was aimed at ferreting out wrongdoing and more tightly regulating private asset managers like hedge funds.
"The reason you are seeing these examinations happening now is that we are a few years past the Dodd-Frank Act, which in certain circumstances required overseas managers to register with the S.E.C.," said Robert Mirsky, partner and global head of hedge funds at KPMG in London. "With registration comes inspection by the S.E.C."
Since taking the helm this year, the agency's chairwoman, Mary Jo White, has sought to remake the S.E.C., which had been criticized for missing major scandals like the Ponzi scheme orchestrated by Bernard L. Madoff. In recent years, some of the S.E.C.'s most prominent cases have involved overseas operations of institutions based in the United States. For instance, S.E.C. enforcers investigated JPMorgan Chase over $6 billion in trading losses at its London operations, and its antibribery unit examined the bank's hiring in Asia of children of Chinese officials.
(Read more: Don't blame the big banks, say Dodd-Frank authors)
The new scrutiny of hedge funds in London, however, is causing consternation among local money managers. Several managers privately expressed concerns that the visits would lead to the importation of American-style regulation to British hedge funds that have American clients.
One British hedge fund manager is said to be considering closing his firm's so-called European event-driven trading business—when a fund seeks to capitalize on a market-moving piece of news like an announced merger—in a bid to avoid being caught up in a stepped-up regulatory sweep.