The European Commission has launched a wide-ranging public consultation on policy issues arising from the activities of the hedge fund industry, in view of developing appropriate regulatory initiative. A significant part of global hedge fund assets are managed and administered in Europe. This consultation will make an important contribution to European and international reflections on whether the approach to the regulation and supervision of hedge funds should be reassessed in light of the financial crisis. 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.
This consultation is part of the Commission's comprehensive review of regulatory and supervisory arrangements for all financial market actors in the European Union, which is to be finalised in 2009 upon consideration of the report of the High Level Expert Group chaired by Jacques de Larosière. It also responds to the recent reports by the European Parliament[1], which raise a number of concerns that have come into sharper international focus as hedge funds have, like many other financial actors, been heavily affected by the current financial crisis.
Commissioner McCreevy announced his intention to launch the consultation in a speech to the Economic and Monetary Affairs Committee of the European Parliament on 1 December (SPEECH/08/665).
Issues addressed by the consultation
In particular, views and evidence are sought in the following areas, so as to guide on appropriate regulatory initiative
- 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.
- 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.
- 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.
- 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 deadline for responses to this consultation paper is January 31st 2009. Responses should be addressed to:
markt-consult-hedge-funds@ec.europa.eu
The issues discussed in this document and feedback from this consultation will also be discussed at a high-level conference in Brussels in late February 2009 (programme to be published shortly).
The consultation is available at:
http://ec.europa.eu/internal_market/investment/consultations/index_en.htm
[1] Report of the European Parliament with recommendations to the Commission on hedge funds and private equity (A6-0338/2008) ['Rasmussen' report] and European Parliament report with recommendations to the Commission on transparency of institutional investors (A6-0296-2008) ['Lehne' report].
