A draft report by the European Parliament’s Economic and Monetary Affairs Committee has called for a new and all encompassing regulatory framework for hedge funds and private equity. In the report, authored by Danish MEP Poul Nyrup Rasmussen, the committee states that Europe must develop a regulatory framework that is as “up-to-date and fine-tuned” as the financial marketplace. Despite making several recommendations to the European Commission (EC) to introduce legislation on this matter, it says that so far the EC has failed to respond.
The report calls for wide-ranging measures to be taken in several areas of regulation including financial stability, transparency, excessive debt and conflicts of interest.
The lack of transparency is a major concern, says the report, given the “amazing” growth of hedge fund assets, which now represent around three percent of global assets under management. The report therefore recommends a raft of measures to increase disclosure by hedge fund managers and also suggests the EC should establish an EU framework for registration and authorisation of hedge fund managers. This information, it says, should be recorded in an EU-wide database to which European supervisory authorities should be given unlimited access. It also suggests that hedge funds should be encouraged to locate onshore.
Elsewhere, the report also proposes the EC should introduce risk-weighted capital adequacy requirements and establish a new EU Supervisory Authority covering all financial services sectors: capital markets, securities, insurance and banking.
Its specific recommendations include:
Transparency Measures
- Registration and authorisation of hedge fund managers
- Managers should disclose the following information: name and domicile of funds they control, identity of managers, corporate earnings and bonuses, remuneration of directors, senior executives and other staff and relationships with prime brokers
- Investment vehicles should disclose: general investment strategy, leverage/debt exposure, overall fees, source and amount of funds raised, past performance, risk-management system, information on administrator of fund, share of fund contributed by management company
Financial Stability
- Appropriate capital requirement should be introduced at the level of the entity that controls investment of the fund
- Risk-weighted capital adequacy requirements should be introduced in respect of liquidity risk
- EC should propose precise rules on valuation of illiquid financial instruments
- EC should establish European Supervisory Authority covering all financial services sectors
Excessive Debt
- EC should devise upper limit for hedge fund leverage
To read the full report, click here: Draft Report with Recommendations to the Commission on Hedge Funds and Private Equity.