Est. 2min 23-09-2008 (updated: 28-05-2012 ) mccreevy3_pic_com.jpg Euractiv is part of the Trust Project >>> Languages: Français | DeutschPrint Email Facebook X LinkedIn WhatsApp Telegram Internal Market Commissioner Charlie McCreevy finds himself in a lonely corner over his opposition to regulating hedge funds and private equity, as the political tide moves towards limiting speculation. While many of the EU’s national regulators have recently decided to ban short-selling, which is one of the typical investment strategies of hedge funds, McCreevy yesterday (22 September) praised the role of speculators and rejected the need for regulation in a speech to the European Parliament. He underlined that the responsibility for the current crisis lies with regulated actors such as mortgage lenders, banks, credit rating agencies and supervisors. Hedge funds and private equity “were not the cause of the turmoil,” he stressed. “I don’t believe it is necessary at this stage to tar them with the same brush as we use for the regulated sector,” he said, referring to upcoming proposals from the Commission on the review of the Capital Requirement Directive (EURACTIV 15/09/08), which will have clear effects on banks and supervisors, and to new rules on credit rating agencies (EURACTIV 31/07/08). Both are expected at the beginning of October. But MEPs from the main political parties asked for more regulation on alternative investors. A report adopted almost unanimously by the committee for economic and monetary affairs, approved today (23 September) in the Parliament’s plenary, requests new rules for hedge funds and private equity, although its original requests have been watered down. Socialist MEP Poul Nyrup Rasmussen, the author of the report, asked McCreevy to present a legislative proposal by the end of the year, as stated in the text itself. McCreevy ruled out regulation, but recognised that short selling and the use of derivatives “pose challenges”. The hedge fund industry expressed concern over the recent attacks on short-selling, while private equity was quick to underline the differences between the two industries. Read more with Euractiv Banks blame uneducated customers as crisis hits Consumers should be trained to distinguish bad loans as easily as unhealthy food on shopping shelves, argues Giuseppe Zadra of the European Banking Federation (EBF). In an interview with EURACTIV, he says better informed consumers might have prevented the financial crisis in the US. Subscribe now to our newsletter EU Elections Decoded Email Address * Politics Newsletters Positions Internal Market Commissioner Charlie McCreevy said yesterday in the Parliament: "We should not make the mistake of perceiving all activities of hedge funds as a threat to the market but we should also be aware of the positive effects that their activities have. Let me be clear that the EU economy is going to need massive investment in the time ahead. Without SWFs, private equity and the like, Europe's recovery from today's turmoil will be all the slower." Party of European Socialists (PES) President Poul Nyrup Rasmussen called on the Commission to react to his report "by the end of the year" (see related EURACTIV interview). Socialist MEP Gianni Pittella commented: "With the vote of today on the Rasmussen report, the European Parliament launched a clear signal to the European Commission and to Commissioner Charlie McCreevy: in the framework of the review of the rules governing financial markets, private equity and hedge funds cannot be excluded." EPP-ED MEP Klaus-Heiner Lehne, rapporteur of another report on the transparency of institutional investors, underlined that "risks taken should be reasonable, and that measures to put an order are necessary". Conservative MEP John Purvis said: "The response from Europe should be measured and international. We should accept that there needs to be a greater level of openness and transparency from hedge funds but the European Parliament is right to avoid rushing into overzealous legislation." ALDE MEP Sharon Bowles pointed to the increased necessity of "more transparency" and warned for the need of higher controls on pension funds. She added: "Regulation must be non-discriminatory and must be part of a broader overall package of monitoring risk. A smart, forward looking approach is needed if we are to prevent not only the recent crisis but also any other potential mishaps. Voluntary codes have only very recently been adopted by hedge funds and must be given more time before we make any determinative judgements." Eurosceptic Scottish National Party (SNP) MEP Alyn Smith commented: "I reluctantly voted for this report, but have no enthusiasm for it. The eventual compromise is muddled, and crucially could be taken to be a call for a massive increase in EU competence where in my view financial regulation, like tax, should remain firmly with the member states themselves." In a statement, the Committee of European Securities Regulators (CESR) underlined: "EU securities regulators are closely monitoring the functioning of the markets under the current circumstances and are considering together possible actions which might be taken to contribute to orderly functioning markets. Any such actions will be taken with a view to strengthening confidence in financial markets and protecting investors." The hedge fund industry, represented by AIMA, the Alternative Investment Management Association, commented in a statement about the ban on short-selling: "These measures have the potential to create several unfortunate consequences, including an increase in the cost of capital for banks, at a time when it is most needed and incorrect pricing of index products, with negative implications for mainstream retail products." EVCA, the European Venture Capital and Private Equity Association, stressed the distinction made by the Parliament and by McCreevy between hedge funds and private equity. Javier Echarri, EVCA's secretary-general, said: "Private equity has been recognised by the European Parliament as key to corporate competitiveness and innovation. Any regulation of this sector should be proposed in the context of cost and benefit. Our work to achieve the maximum understanding of our business model and its role in Europe's economy continues, but we welcome the prudent approach of the Commission outlined today by Commissioner McCreevy." BackgroundLast April, Party of European Socialists (PES) President and former Danish Prime Minister Poul Nyrup Rasmussen presented a draft report to increase regulation on hedge funds and private equity. Hedge funds are investment vehicles which exploit market imperfections to make returns even when the market is going down. Private equity focuses on acquiring businesses to sell them on at a higher price: so-called 'buy-outs'. It also involves capital ventures. After a deep review, the document was approved by the Parliament's committee for economic and monetary affairs on 10 September (EURACTIV 11/09/08). The new text requests the Commission to present a legislative proposal by the end of the year to better regulate hedge funds and private equity. It calls for more transparency of so-called 'alternative investors' as well as capital requirements, limited debt exposure and a ban on "unreasonable asset stripping". As the financial crisis worsens, national supervisors in the EU and the US have temporarily banned 'short selling'. The term is used by financial experts to refer to the sale of unowned shares. Investors borrow assets which they then sell, betting on the decrease of their value. The objective is to buy them back at a lower price and make a profit before giving them back to the lenders. By short-selling, investors drive down prices, with a positive effect in terms of adjusting overvalued assets. But the practice also has negative consequences and can even trigger the collapse of entire companies. 'Short selling' is an investment technique typical of some hedge funds. Timeline By the end of the year, Commissioner McCreevy should present a legislative proposal to follow up on Parliament's requests or explain why he will not, according to a new procedure for interinstitutional relations applied by the Rasmussen report. Further ReadingEuropean Union European Commission:McCreevy's speech at Parliament's plenary(22 September 2008) European Parliament:Original Rasmussen report(18 April 2008) European Parliament:Motion for a resolution on private equity and hedge funds(11 September 2008) Committee of European Securities Regulators (CESR)Measures adopted at national level on short-selling(22 September 2008) Governments SEC - USA:Statement on short positions(21 September 2008) Business & Industry Alternative Investment Management Association (AIMA):Cautions against consequences of short-selling rules(19 September 2008) European Private Equity and Venture Capital Association (EVCA):Statement on Parliament's position on private equity and hedge funds(10 September) European Private Equity and Venture Capital Association (EVCA):Statement before Parliament's vote(22 September) Non-assigned links FSA - UK:Statement on short positions(18 September 2008) BaFin - Germany:Statement on short positions(19 September 2008) AMF - France:Statement on short positions(22 September 2008) Consob - Italy:Statement on short positions(19 September 2008) CBFA - Belgium:Statement on short positions(19 September 2008) Financial Regulator - Ireland:Statement on short positions(18 September 2008)
