Brussels, 26/02/2009 (Agence Europe) - Commissioner Charlie McCreevy, responsible for the internal market, reluctantly announced on Thursday 26 February during a conference to mark the end of the consultation exercise on hedge funds (see EUROPE 9809) that the Commission would be presenting a legislative proposal on hedge funds and private equity. The initiative, which is intended to be in line with the commitment taken by President Barroso, should however be developed with caution and be “proportionate and targeted on clearly identified market failures so that it is not counterproductive”, he added. He went on to explain that the financial crisis has “profoundly altered the economic and political context” and has therefore displaced the terms of the debate aimed at the industry of non-harmonised funds. This has made regulatory action “inevitable”.
The commissioner suggested six lessons that need to be borne in mind when drawing up the legislative proposal: - 1) any action should distinguish between hedge funds and private equity, the first being able to have a systemic impact on the financial markets while the latter should improve relations with stakeholders (management, employees) in companies under their control; - 2) action should build on the already extensive experience with regulation of alternative investment managers and industry in Europe; - 3) rules for protecting investors in hedge funds and private equity should take into account the fact that these funds raise the bulk of their money from experienced or institutional investors, who do not need the types of regulatory protection or disclosure designed to protect small household investors; - 4) any action should recognise that “the first line of defence against undesirable managed companies is to limit the flow of credit at source”, i.e. at bank level; - 5) any action should recognise that many of the criticisms and accusations levelled at hedge funds and private equity are not unique to them. For example, short selling is not only used by hedge funds, and the difficulties of obtaining new credit are not limited to private equity portfolio companies; - and 6) any action must recognise the highly transnational character of these industries and should ideally be supported by international consensus to the greatest extent possible.
Mr McCreevy also expressed the hope that the Commission would announce initiatives at the Spring European Council on executives' remuneration, the reduction of leverage in the financial system, management of counterparty risk in complex structured products, and the strengthening of depositor protection, particularly in the insurance and securities sector. (M.B./transl.jl)