Interview: 'First real step' to regulate hedge funds[fr][de] 

Rasmussen, a former Danish prime minister, could not have chosen a better moment to speak out about hedge funds. With financial markets in turmoil since investment bank Lehman Brothers filed for bankruptcy last weekend, attention is turning to regulators and what they can do to prevent similar crises in the future.

The head of the European Socialist Party firmly believes something new started last week when his report on hedge funds found unusually broad support in the Parliament's Economic Committee, even if only after a very substantial review of the original text (EurActiv 11/09/08).

"I don't believe that we can avoid future financial bubbles without changing the behaviour of the major players on the financial market," Rasmussen told EurActiv in an interview. "This means all the players need to behave in a more responsible way: the brokers in the investment banks, the securitisation process, credit rating agencies, hedge funds and private equity."

"We need better regulation to isolate the bad guys and this is what we are doing."

The former Danish prime minister is under no illusions that regulating hedge funds and private equity will solve the problem overnight. But he is confident that the process cannot be reversed. "This report, even if implemented 100%, would not guarantee that we could avoid any future financial crisis, of course. But it is a first step and also the first time that we have a broad majority in Parliament," he underlines.

Now, he is calling on the European Commission and particularly internal market chief Charlie McCreevy to take action and table a proposal. "I expect a full response which is serious, responsible and covers all the aspects covered in our report. This is an obligation for the Commission. They have done that in all earlier cases."

"This is a wake up call for McCreevy in the sense that, for too long, he has only asked industry insiders for advice on what to do and never asked others."

City 'will benefit' from regulation

Rasmussen dismisses suggestions that further regulation will hamper Europe's financial sector and undermine the City's role as a global financial hub. "I have said quite often during this debate that this is not about making difficulties for the City of London. In the end, it is in the City's long term interest to have better behaviour from all the actors, not only the good guys, but also the others. And it is in the interest of the City to do all we can to avoid financial bubbles of the kind that we're having right now."

He seemed amused by the reaction of financial industry representatives, who were generally supportive of his report. "If the industry is happy with mandatory capital requirements that they did not have before, that's fine with me - that's a new recognition from their side." 

"If they are happy with stronger transparency and disclosure on their investment strategies, on their remuneration policies and systems as well as their bonuses and stock options, that's fine with me because they have not been doing that before."

"It is fine if the industry is constructive but let me remind you that until this moment, they have been against any regulation."

Banks 'making too much gain on an inefficient market'

Rasmussen also roundly rejected claims by the financial industry that disclosing investment strategies, as requested in the US, will only benefit the bank's direct competitors. "This is a classic argument," he said, adding that the bank's defensive line can be explained by the fact that "they make too much gain on an inefficient market".

"The essence of fair and strong competition is that all actors have as much information about the other as possible," he said. "Transparency and symmetry of information are the keywords to ensure better competition, lower costs and avoiding market abuse."

To read the interview in full, please click here.