McCreevy Explains Better Regulation in Hedge Fund Context

The European Commission’s principle of better regulation is embodied in how the Commission has approached the regulation of hedge funds, said Commissioner for the Internal Market Charlie McCreevy. In remarks at the Public Affairs Ireland seminar, he noted the better regulation in of the financial industry aims to simplify regulations, reduce burdens, and create a level playing field. The Commission works through a consultative process and impact assessments.

Regarding hedge funds, Mr. McCreevy said that the Commission could have designed a complex and ill-prepared regulatory framework. They is still a drumbeat for such an approach, he added. However, the Commission talked extensively to all the participants in the hedge fund industry, including market professionals, regulators, and investors. The EC also thoroughly examined financial stability issues.

After this deliberative process, the Commission decided to rely on an indirect approach involving the upstream monitoring and regulation of prime brokers and the investment banks dealing with the hedge funds, which is where the real prudential risks lie. This approach is working well, reported the commissioner, and allows financial innovation to prosper. A hedge fund industry is now developing in Europe at a remarkable pace.