Brussels, 10/12/2008 (Agence Europe) - As their contribution to the reflection on the reform of international financial architecture, the Danish authorities last week submitted a list of 35 measures for adoption at European and international levels to ensure financial stability while maintaining the objective of an open market. The measures mostly refer directly to private equity funds and hedge funds, but also to banks' own resources requirements, credit rating agencies and the role of the International Monetary Fund (IMF). This contribution comes at just the right time after the Rasmussen and Lehne reports, adopted by the European Parliament in September (see EUROPE 9747) and the announcement by Internal Market Commissioner Charlie McCreevy of yet another reflection on these financial players (see EUROPE 9796).
On top of the current financial and economic crises, there could very well be a further major financial crisis when financial institutions and private equity funds have to refinance the debts in their portfolio of activities, the Danes say. If, as the G20 summit said, no product/player/jurisdiction must be allowed to avoid monitoring or public scrutiny, the reform of the international financial architecture must include these funds. Such funds have a strong impact on financial stability because of their links to the banking and insurance sectors and pension funds, and the macro-economic impact of their company acquisition activities. Furthermore, companies' debts tend often to increase once they have been bought by private equity funds, the Danish authorities remark.
Copenhagen, often using the example of its national legislation, puts forward a raft of measures to be taken at European level to: 1) increase transparency in the acquisitions of large companies: extending the range of information contained in the purchase offer document of a listed company; 2) increase transparency in financial inducements: banning acquirers from making specific agreements (share distributions, bonuses, etc) with the heads of the acquired company before the conclusion of the purchase; the requirement on an acquirer to communicate, before the purchase, his intentions on redistribution of funds from the target company towards himself or third parties; authorising shareholders of listed companies to give prior approval of company policy on remuneration for its heads; 3) maintain the system for informing and consulting employees if their company is taken over; 4) introduce a Community registration and authorisation system for private equity and hedge funds, and also for fund management companies (to reduce the chances of relocation outside the EU); 5) tackle irresponsible levels of debt by financial institutions, including through fiscal leverage; 6) ban the financing of the acquisition of a parent company by a company controlled by that same parent company; 7) introduce a maximum limit on the borrowing capacity of hedge funds and ensure that the level of debt is acceptable from the point of view of the risk taken; 8) increase transparency on the taxation applicable to private equity and hedge funds: analysis of the way in which national taxation takes account of aggressive fiscal strategies (for example, taxation of the remuneration of heads), pressure on member states to ensure effective taxation in the EU of revenue from private equity and hedge funds (and their management companies); 9) avoid conflicts of interest that could emerge, for example, between private equity funds and the management of a target company. (M.B./transl.rt)