MEPs call for stricter rules over regulation
- Story by: Richard Roberts
- Magazine: InvestmentAdviser
- Published Monday , September 29, 2008
Wranglings over Europe’s response to the financial crisis could signal the end of Anglo-Saxon light-touch regulation.
Members of the European parliament are "incandescent with rage" that large swathes of recent European principles-based legislation appear to have offered little or no protection as the liquidity crisis hit European banks and investors suffered.
Consequently, they have called for internal market and services commissioner Charlie McCreevy to introduce strict legislation drawn up by the European Commission to regulate hedge funds and private equity.
However, Mr McCreevy last week dismissed a report by ex-Danish prime minister Poul Nyrup Rasmussen that demanded greater transparency and protection for those working for companies taken over by hedge funds.
In a speech to the European parliament, Mr McCreevy rejected suggestions the investment vehicles were behind market collapses.
He said: “One thing we can agree on is that they were not the cause of the current turmoil. It has turned out that it was the regulated sector that had been allowed to run amok with little-understood securitisation vehicles. I don't believe it is necessary at this stage to tar hedge funds and private equity with the same brush as we use for the regulated sector.”
MEPs, however, disagree with his suggestion that the capital requirements directive is already sufficient regulation. They are calling for stricter rules and Mr McCreevy to resign if he is unwilling to introduce them.
Economic commissioner Joaquín Almunia Mira said tough regulations covering credit agencies recommended by the Rasmussen report would be presented within the next few weeks.
He warned: "The latest events in financial markets have made it clear that the current model of regulation and supervision needs to be revamped."
Mark Twigg, a director at public policy consultancy Cicero Consulting, said UK-style regulation could fall foul of the new mood in Europe.
He said: “Parliament now wants its pound of flesh, and the European Commission will have to take action. Mr McCreevy has been discredited.”
Mr Twigg said many MEPs were furious that previous EU light-touch regulation - much of it influenced by big US banks - has proved ineffective.
He said: “The UK is more reluctant to accept a market failure and a regulator failure, that the FSA was asleep at the wheel over Northern Rock for example. In Europe, the view is that the Anglo-Saxon style of regulation has failed. MEPs are asking whether risk-based principles can address these issues.”
Mr Twigg added that the UK’s influence over legislation over the next 12-18 months would be severely limited as a result of recent events.
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