The hedge fund industry poses a minimal risk to financial stability in the UK, two new surveys published by the country's regulator have found.

According to the findings of the Hedge Fund Survey and Hedge Fund Counterparty Survey, published on 21 August by the Financial Services Authority, there is a limited danger that hedge funds can transmit systematic risk as their footprint in the grand scheme of the financial markets is relatively modest.

The FSA pointed out that the surveys only covered the UK market and not the global hedge fund industry.

The regulator also found that the 14 banks taking part in the survey have further cut their exposure to hedge funds in an effort to insulate themselves from risk.

However, consultants Laven Partners believes it is more alarming for hedge funds that the funds participating in the survey have their exposures highly concentrated in five large banks. "This remains a worrying statistic after the most recent financial crisis," the firm says.

"The fact that large banks have become less exposed to hedge fund defaults is a healthy sign, but it is still very worrying - from the funds’ point of view - that the counterparty exposure of hedge funds is heavily concentrated," said Jerome Lussan, chief executive of Laven Partners. "For fund managers, these studies will highlight the importance of addressing counterparty risk re banks.

"These annual FSA hedge fund surveys serve an important function in both monitoring the potential systematic risk from within the hedge fund sector as well as in debunking some of the common myths of hedge funds as a source of financial instability."