EUROPE: Commission launches public consultation on hedge funds

Friday December 18 2009

The European Commission has today launched a public consultation on policy issues arising from the activities of the hedge fund industry. This consultation will play an important role in informing the ongoing reflections at European and international level on whether there is a need to reassess the appropriateness of existing approaches to the regulation and supervision of this sector.

The consultation, which is based on the principle that all financial markets, products and participants should be regulated or subject to oversight, as appropriate to their circumstances, aims to explore whether the regulation and supervision of hedge funds should be reassessed in light of the current financial crisis. In order to guide on an appropriate regulatory response, the consultation seeks views and evidence in the following four main areas:

I. Systemic Risks: The consultation invites views on whether existing systems of macro-prudential oversight are sufficient to allow regulators to monitor and react to risks originating in the hedge fund sector and transmitted to the wider market through counterparties, including prime brokers, and through the impact on asset prices.

II. Market integrity and Efficiency: The consultation asks whether and under what circumstances the activities of hedge funds pose a threat to the efficiency and integrity of financial markets.

III. Risk management: The consultation asks whether public authorities should concern themselves more with the way in which hedge funds manage the risks to which they and their investors are exposed, value their asset portfolios and manage any potential conflicts of interest.

IV. Transparency towards investors and investor protection: The consultation invites views on whether hedge fund investors are adequately protected and receive the information required for sound investment decisions.

The results of the consultation will be discussed at a high-level conference in Brussels in late February 2009, and will serve as the basis for European input into the parallel reflections on hedge funds at international level by the G20. The deadline for responses to this consultation paper is January 31st 2009.

Click on the above link to download the consultation and details for submitting responses.