Hearing: Transparency of institutional investors
Opening the hearing rapporteur Klaus-Heiner Lehne (EPP/DE) posed the question for possible legal measures focussing on the transparency of institutional investors. Most speakers denied the need for additional legislation, although many called for better implementation and harmonisation of already existing directives.
Maarten Nederlof, Managing Director, Deutsche Bank and Global Co-Head of the Hedge Fund Capital Group outlined the functioning of economic actors in hedge fund trading and underlined their role as liquidity providers. Registration requirements do not limit the risk of failure, he said. Hedge fund regulation would also not lead to improved money laundering standards.
The actors such as banks, investors and prime brokers are already sufficiently supervised, he said.
Stefano Micossi, Director General Assonime, European Association of Listed Companies, opposed the view that hedge funds seek short-term gains and do not consider the long term interest of companies and their shareholders. “This belief is not supported by either theory or empirical evidence”, he said.
However, his main concern is with ensuring the integrity and transparency of the voting process. He also sees a need to enhance the transparency for OTC business and proposed to channel the trades through organized exchanges or clearing houses. To establish institutional incentives he called for an increased role of rating agencies.
Ronald Wuijster, Head of Strategic Research at ABP Investments opposed a wide raging transparency initiative as this would drive out these funds and would undermine their competitiveness. An increased transparency might be possible to the regulator upon request, but not the public, he proposed.
First round of questions:
Pia-Noora Kauppi (EPP/FI), drafswoman for the JURI opinion on Hedge Funds, was interested in how far a ‘code for best practice’ could be integrated into the IOPR directive. She was also interested in more details on possible incentives as proposed by Mr Micossi.
Klaus-Heiner Lehne (EPP/DE) was interested in the size of the market share the hedge fund industry has and wondered whether good corporate governance does necessarily imply transparency.
In particular he asked whether transparency obligations should be targeted to prime brokers, and how these are supervised.
Ieke van den Burg (PSE/NL) was mainly interested in disclosure and transparency requirements, and whether they should be made available to the general public or the authorities only.
Sharon Bowles (ALDE/UK) was mainly interested in the US experience of disclosure of investment strategies.
Responses to the MEPs showed that the integration of clearing houses (OTC) might be operational difficult. Prime Brokers could be the possible target group for further transparency. However, it was also noted that hedge funds already provide sufficient information to their investors. Speakers warned that further regulation and transparency obligations, eg. of the investors of the funds, could harm competition and drive out the funds to off-shore locations.
Peter De Proft, Director General of EFAMA called for more consistent implementation of existing legislation. Regulators should also have the possibility to get full disclosure upon request. Transparency requirements should be tailored to the objective and the target group.
Javier Echarri, Secretary General of EVCA, (see speech) concentrated on the difference between private equity and hedge funds. Private equity is sufficiently supervised and regulated, he said and underlined the long-term interest of these investments.
Carlo van Heuckelom, EUROPOL, Head of Financial and Property Crime Unit, pointed to the US experience and the increasing case-numbers for fraud. Mr van Heuckelom called for a catalogue of measure to fight fraud and money laundering.
Prof. Marco Lamandini, University of Bologna, outlined the more academic evidence and called for more harmonized European legislation, and in particular coherent implementation of existing legislation.
Finally, Paul Marshall, Member of the Hedge Fund Standards Board explained that more than 80 percent of the European Hedge Fund industry is based in the UK and regulated by the FSA. He also outlined the difference between the US and Europe and said that European hedge funds are less exposed to fraud.
He noted that the currently agreed ‘Code’ could become a global benchmark for best practice. A voluntary code would not distort the necessary financial innovation of hedge funds.
Second round of questions:
Manuel Medina Ortega (PES/ES) reminded to the Spanish experience in the course of the financial turmoil. He favoured a national approach for as long as no European control system is established.
Ieke van den Burg (PES/NL) asked whether a code of conduct is able to prevent the short-term orientation of hedge funds, and whether there are methods to extend EU legislation to off-shore locations directly or indirectly.
Pia-Noora Kauppi (EPP/FI) asked for more explanation on the disclosure to the regulator approach.
John Purvis (EPP/UK) finally asked about the need for regulation in the retail market.
Closing the meeting rapporteur Klaus-Heiner Lehne (EPP/DE) noted that the Committee is very much interested to receive further information from EUROPOL with regard to fraud and money laundering issues.
He wants to revise already existing regulations probably with the view of further European harmonisation.
The Draft report can be expected end March 2008.
(The second round of questions remained unanswered. Answers will be sent in written format to the Committee)
Programme
A simplified business environment for companies in the areas of company law, accounting and auditing
Rapporteur: Klaus-Heiner Lehne (EPP–ED)
Consideration of draft report
Draft report, Commission document
(NOTE: This sessino could not be attended due to the parallel ECON meeting on Solvency II)
JURI Report
© Graham Bishop
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