The European Union and "hedge funds: regulation or abandonment of the European territory?
by Jean-Claude Paye *
The European Union has just adopted, to great fanfare, a regulation des hedge funds designed to limit the systemic risk to the economy. In fact, as noted by Jean-Claude Paye, the new board is full of holes and have an inverse effect announced. Their real objective is to ensure control of European funds as it opens the door to U.S. funds, which are those that will be able to speculate without limits, to the detriment Europeans.
December 9, 2010
Economic globalization
The City of London, the Trojan horse U.S. capitalist predators within the European Union.
Unlike what happens with financial institutions such as banks, insurance companies and investment groups that use public funds to savings, there are no specific control systems for hedge funds. The latter can be used absolutely all waivers and exceptions in the regulatory texts.
However, if hedge funds are not the cause of the current crisis, because that is more in the relaxation of the conditions of bank credit and money creation which gives rise systemic risk that hedge funds pose to the financial system as a whole has come to light. Indeed, for significant results rely on a lever. Mass borrow from banks to compensate for the weakness of his own stake which, in case of a problem, multiply the imbalances.
By failing to establish a framework that limits the possibility of debt and create financial bubbles, the EU avoids addressing the main problem. The policy on hedge funds formally appoints a scapegoat: hedge funds. However, the policy does not improve the surveillance, but on the contrary, in fact eliminated the possibilities of control by national authorities.
A control misleading
This project simply exercising apparent control over hedge funds [1] and does not establish any kind of surveillance at the community level. By contrast, The directive extends the national level of accreditation of these funds to allow agencies domiciled in a Member State has access, without authority of each national authority, the whole national territory comprising the European Union. Contrary to the effect announced, the text reinforces the dominant nation in financial terms and therefore the position of the City of London, which manages the bulk of hedge funds located on European soil.
also presented this policy as a tool in the fight against tax havens when, in fact, through the City, what it does is open the door of the European Union without any control by the Member States outside the regulations obliging the British authorities.
After acceptance, on October 26 [2] the proposal on the directive ISA (Alternative Investment Fund Manager) [3] was finally passed in Parliament on November 11, 2010 .
that assembly is asked to legitimize a framework document extending discretionary powers to the Commission. The directive leaves a great margin of discretion to the Commission in determining whether or not to define the key points of legislation, the determination of the maximum levels of leverage, assessment procedures, restrictions on short sales operations and all this at the time of the entry into force of the directive and after installation [4]. It is for Parliament, to extend a blank check to the Commission, as well as "self-regulation" of financial system.
The text formally imposed a European framework for hedge funds, to establish a "passport" that allows the marketing of funds throughout the EU, without having to obtain approval in each country.
European managers may market their funds freely from 2013. Be granted a passport to offshore agencies (outside borders) in 2015. You are only granted to those associated with countries having signed agreements where appropriate and to combat money laundering.
The question of "passport" was the focus of negotiations on the directive ISA. These began last year and half between the European Commission, Council and Parliament. The conflict formally confronted the United Kingdom, reluctant to any form of regulation of hedge funds, France and the European Union Parliament.
A key giving access to the whole European market
The passport gives access to the whole of Europe as a whole, but depend solely on national supervisory authorities. The Supervisory Authority shall deliver the country of origin, where the latter is accredited by the future Community Regulatory Authority Financial Markets (ESMA), which in turn will take office in early 2011. The ESMA also handle the registration of fund managers allowed to operate in the European Union, have authority to act as arbitrator in conflicts between national authorities on the nature of a fund and the guarantees provided.
As the financial center located in a Member State of the European Union, the City of London, which are located between 70 and 80% of hedge funds, depend solely on the structure of British control.
That way, instead of forming a European regulatory framework, the policy encourages competition between Member States of the European Union. Nothing prevents administrators to choose the country where they will register according to the degree of tolerance offered by national authorities.
Fund managers are now required to set a maximum debt leverage. This information is transmitted to national authorities in the European country where it is registered by the administrator. But there is nothing in the policy requiring the national authority to act when you consider that the lever is excessive. And the ESMA, the European regulator of financial markets, also lacks authority to compel national authorities to take action.
The directive provides no means that would actually control the level of debt, although it is the level of debt which gives rise to systemic risk created by hedge funds. The latter have, in fact, very little equity capital and rely on banks for massive loans. The result is an action whose impact on markets, compared with the [modest] size of their capital, it dont really excessive.
In fact, the directive does not change the mechanism of debt. Simply forcing hedge funds to inform their supervisory authorities, without forcing the latter to intervene in case there a problem. It is, above all, to maintain the independence of the entire financial system. As noted by Guido Bolliger, chief Investment Officer of Olympia Capital Management [5], "instead of resorting to a policy, would have been simpler to limit the leverage that investment banks can print to hedge funds to increase the capital charge the lever agreed for prime brokerage operations. "
A predominance of Anglo-Saxon finance
A provision in the agreement is being presented as a means of combating tax havens. Hedge funds located in countries which do not ensure an active exchange of information, specifically tax information shall not be marketed in the European Union. This is an important issue when you know that 80% of hedge funds are located in out-of frontiers.
However, due to pressure from London, the final text limits the scope of the directive to the market called "active." That means specifically that nothing will prevent a European investor, a bank, insurance company or a collective body of investment fund buying parts outside the European Union did not win the European passport for breaching a condition for the policy. This provision therefore opens access to European territory capital held offshore related to the City, as the Anglo-Norman territories and the Cayman Islands or, for example, those who are under the direct administration of the United States, as State of Delaware in the U.S..
is a violation of the spirit of the legislation and that, in this case does not transmit any information to regulators, which can not therefore assess the risk they are exposed "investors" Europeans. But it is above all a new abandonment of the member countries of the European Union against the financial might of the Anglo-Saxon. And it's not possible, purely formal, recognizable to each state of the European Union appeal to the ESMA, where differences arise between the authority and a third country, which succeeds in changing the balance of power.
This policy also forms the structure of financial markets, revealed by the faith G20 April 2009 on "the fight against fiscal fraud [6], or control the legitimacy of the Anglo-Saxon on the sector European financial. However, if the supremacy of the City in the European Union regarding the administration of hedge funds, is overwhelming (80% of the funds industry is British when France has only 5%) that power is relative.
English funds represent 212 billion [1 billion = one thousand million. NDT.] Dollars, relative to the amount of 1 000 billion for those in the United States. Therefore, the central London Square appears to be primarily the Trojan horse of U.S. hedge funds.
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Jean-Claude Paye
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