On December 17, the European Commission published a consultation paper seeking views on whether regulation and supervision of hedge funds should be reassessed. The consultation follows from an initiative of the European Parliament demanding regulation of hedge funds and private equity funds and instructing the Commission to propose legislation (see the September 26, 2008, edition of Corporate and Financial Weekly Digest).
The European Commission consultation seeks views on whether it is necessary to: (i) increase the capacity of the current regulatory framework to monitor and react to risks originating in the hedge fund sector; (ii) reassess the systemic relevance of hedge funds; (iii) address market integrity and efficiency issues including short selling and limits on leverage; (iv) improve management of market risks in areas including asset valuations and conflicts of interest; and (v) provide greater transparency to investors and increase investor protection.
Also, in relation to a number of the consultation points, the Commission asks how an appropriate regulatory initiative should be designed to complementand reinforce existing industry codes. The Commission considers that any adjustment to the current “policy stance as regards hedge funds” should be part of the overall EU review of the regulatory and supervisory framework in financial markets and its comprehensive policy response to the current financial crisis.
The responses to the consultation will also serve as the basis for the EU’s contribution to the consideration of similar issues by the G-20 and International Organization of Securities Commissions. The consultation closes on January 31, 2009. Feedback from the consultation will be discussed at a high-level conference to be held in Brussels in late February 2009.