British financial regulators are targeting hedge funds that issue “side letters” to some large investors that give them preferential access to performance information and early redemption options. The U.K. Financial Services Authority released a discussion paper earlier this week in which it promised to take action against these funds, which it said breach its first “principle for businesses,” that a firm “must conduct its business with integrity.”

The FSA said it expects funds that issue side letters to inform all investors about their existence and terms, and to manage any conflicts of interest. The regulator said it will review the practice again later this year and decide whether to take action against individual hedge funds and their senior management.