"The Commission is committed to bringing forward an appropriate legislative initiative [on private equity] which I intend to present to the College before the end of April," McCreevy told a high-level conference organised by the European Commission yesterday (26 February).
The announcement comes after EU leaders meeting in Berlin last Saturday (21 February) committed to imposing "appropriate oversight or regulation" to "all financial markets, products and participants" (EurActiv 23/02/09).
The commissioner had thus far avoided making any clear commitment to regulate private equity funds, claiming that the industry was not responsible for the current crisis and does not pose a systemic risk to the smooth functioning of financial markets (EurActiv 28/01/09).
According to a counter-argument raised by the Socialist Party in the European Parliament (PES), excessive debt fuelled by private equity funds contributes to the destabilisation of the financial system. In addition, the Socialists accuse private equity funds of buying out companies with the sole intention of selling them at a profit. "Companies are much more than a class of assets," argued PES President Poul Nyrup Rasmussen, at yesterday's conference.
Under pressure, McCreevy finally agreed to put forward legislation, despite underlining that "fixing regulation and supervision will not extract us from the present mess".
However, it remains to be seen what kind of initiative McCreevy will take. The current Parliament is approaching the end of its mandate (elections are scheduled in June), leaving little time for the Commission to present a proposal. But the fact that the initiative has been scheduled for April raises doubts about the possibility of passing legislation before the new Parliament becomes operational in the autumn.
Brussels might insteaddecide to table a communication, an instrument designed mainly to assess a situation rather than to regulate it. However, this is unlikely to please the Socialists, who have instead openly asked for a new directive on private equity, to define clear limits on leverage and better control asset stripping in the event of buy-outs.
According to the Socialists, a new directive should increase transparency towards supervisors as well as employees of acquired companies, who "should be informed and consulted on the detailed structure of the acquisition of the company they work in".
The private equity industry reacted to mounting pressure surrounding their sector by making a last-ditch attempt to avoid regulation. The association representing European managers (EVCA) proposed a code of conduct for the industry, to be applied in a year's time.
Rasmussen dismissed the proposal as "totally unacceptable". "The moment for self-regulation has passed, if it has ever been there in the real world," he said.
