views

EU hedge fund clampdown is labelled 'poor'

THE planned clampdown on hedge funds by European bureaucrats is &ldquo;vague, sweeping and inadequate&rdquo;, according to a damning report on the merits of the controversial directive.<br /><br />Research by economists and academics on behalf of the European Parliament said the attempt to regulate hedge funds is, in its current form, &ldquo;poorly-constructed, ill-focused and premature&rdquo;.<br /><br />Authors said the directive was protectionist and would lead to a backlash from other countries which could be expected to respond in a similar way, leading to a &ldquo;protectionist spiral&rdquo;.<br /><br />Urging Brussels to shelve the plan, the report by Europe Economics found that a number of hedge funds would shut down if the proposed regulation was imposed and fewer hedge funds would enter the market in the future.<br /><br />The report said it would be a mistake to impose restrictions before the regulatory framework of the wider banking industry was clearer.<br /><br />&ldquo;It could well be better to wait until the final form of banking regulation is clearer, and at that stage, as it were, 'fill in the holes' in respect of required regulation of bank counterparties,&rdquo; Europe Economics said.<br /><br />The report accuses the EU of having not properly thought through the hedge fund crackdown and, importantly, provided no economic rationale for its introduction. <br /><br />The report found: &ldquo;It is vague in that it lacks any proper economic analytical structure. It is sweeping in its bundling together of various only vaguely-related financial entities under the heading of AIF (alternative investment fund) and AIFM (alternative investment fund manager). <br /><br />London would suffer if the proposals become law, as it hosts 80 per cent of all Europe&rsquo;s hedge fund business.