European Parliament votes to reform hedge fund and private
On 23 September 2008 the European Parliament called for strict
new EU rules governing high-risk private equity and hedge fund
activity, even though top regulators in the EU had said there were
no plans to push forward extra legislation.
Currently, hedge funds and private equity funds in the EU are
predominantly privately controlled, allowing them to take high
risks and disclose relatively little information about their
activities. However, the Parliament has endorsed a report by former
Danish prime minister Poul Nyrup Rasmussen that called for action
prevent unreasonable asset stripping of companies taken over by
private investors, on the basis that employees of target companies
should have the same rights under EU law regardless of whether
private equity investors or hedge funds are the acquirer
institute a regime that would require greater transparency by
hedge funds and private equity funds, including disclosures
general investment strategy and fee policy
leverage/debt exposures, risk-management systems and portfolio
source and amount of funds raised, including internally
high level executives' and senior managers'
remuneration systems, including stock options and
the identities of shareholders beyond a certain
require executive reward packages to reflect losses as well as
require all investment firms, funds and other financial
institutions to follow capital requirement rules that oblige them
to cover their risks, so that the interests of investors and loan
originators are aligned, either by requiring originators to retain
a portion of securitised loans on their own books or other measures
with equivalent effect.
Under the EU legal structure, the Parliament can only ask the
European Commission to draft new legislation and to date the
Commission's Internal Market and Services chief has seen no
need to add to existing rules governing hedge funds and private
equity funds. Nevertheless, the Parliament has asked the Commission
to review the existing rules governing these funds and to put
forward any new legislation it considers necessary by the end of
These latest reforms follow announcements made last week that
regulators throughout Europe have begun taking action to restrict
short selling as an interim measure to protect the fundamental
integrity and quality of markets, and to guard against further
instability in the financial sector.
The Committee of European Securities Regulators (CESR) has been
coordinating actions by EU members on short selling practices,
particularly in relation to financial companies. A summary of the
measures put in place by the various EU regulators as at 22
September 2008 can be found on the CESR website.
Regulators in Australia, the United States, Canada, the United
Arab Emirates, India and Taiwan have also taken action in response
to the crisis.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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