In October 2008, the European Commission mandated the de Larosière group to provide proposals to strengthen European supervisory arrangements covering all financial sectors, with the objective to establish a more efficient integrated and sustainable European system of supervision.
On 25 February 2009, the de Larosière group published its report which included 31 recommendations for improving European supervisory arrangements.
The report was set out as follows:
- Chapter 1: Causes of the financial crisis.
- Chapter 2: Policy and regulatory repair.
- Chapter 3: EU supervisory repair.
- Chapter 4: Global repair.
In Chapter 2 of the report there is a discussion on closing gaps in regulation. This covers the "parallel banking system", securitised products and derivatives markets and investment funds. The report advocates looking at the activities of the "parallel banking system" which encompasses hedge funds, investment banks, other funds, various off balance sheet items and mortgage brokers in some jurisdictions.
On hedge funds, the group does not consider that they played a major role in the emergence of the financial crisis. However, the group does call for greater transparency on the basis that banks, the main lenders to hedge funds, and their supervisors need to be able to obtain a global view of the risks they are engaging in. The group states that at the very least, supervisors need to know which hedge funds are of systematic importance and that they should have a clear on-going view of these funds' strategies, risk structure and leverage.
In recommendation 7 the group recommends to:
"improve transparency in all financial markets - and notably for systemically important hedge funds - by imposing, in all EU Member States and internationally, registration and information requirements on hedge fund managers, concerning their strategies, methods and leverage, including their worldwide activities."
On investment funds the group recommends developing common rules, particularly in relation to definitions, codification of assets and rules for delegation. This should be accompanied by tighter supervisory controls over the independent role of depositories and custodians.
View de Larosière report on financial supervision in the EU, (PDF 443KB), 25 February 2009