EUROPE: Commission calls for strengthened hedge funds supervision

Wednesday March 4 2009

In their latest document entitled “COMMUNICATION FOR THE SPRING – Driving European recovery”, the European Commission President José Manuel Barroso has called for a new structure of EU financial market supervision to be up and running in the course of 2010.

This communication builds on the Larosière report presented to the Commission last week calling for a two-stage approach with one to monitor system-wide risks and the other to monitor day-to-day supervision of banks, insurers and markets to creating a new EU financial market supervisory system. This is a measure to help prevent a repeat of the current financial market crisis.

The Commission also proposed the publication of a “comprehensive legislative instrument` for hedge funds and private equity, and a strengthened recommendation to review financial managers’ fees during April 2009.

In another development Charlie McCreevy , European Commissioner for Internal Market and Services has propose six lessons that need to be borne in mind when thinking about any regulatory or legislative initiatives in respect of hedge funds and private equity:

* Any proposed action should make the necessary distinctions between hedge funds, private equity and other forms of alternative investment.

* Action should take into account the already extensive experience with regulation of alternative investment managers and industry in Europe.

* Any action should recognise that the first line of defence against undesirable levels of leverage in hedge funds, or excessive lending to private equity managed companies is to limit rather than prohibit the flow of credit at source. Much of the present difficulty encountered by hedge funds and private equity portfolio companies stems from the sudden tightening in cash and securities lending.

* Hedge funds and private equity raise the bulk of their money from experienced or institutional investors as far as Investor Protection is concerned .

* Most of the criticisms and accusations that are blamed on hedge funds and private equity are not unique to them.

* Any action must recognise the highly trans-national character of these industries – any action should endeavour to seek international consensus.

Click on the above link for the Commission’s latest communication.

Click here for the da Losiere Group Report

Click here for Commisioner McCreevy’s Report