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“Let me make a few things clear: First, it is a myth that European hedge funds are not regulated. In the European Union, hedge fund managers, administrators and products are subject to wide-ranging national regulatory requirements.
“There is ongoing monitoring by banking supervisors of bank exposures to hedge funds. There are enhanced market disciplines enforced by hedge fund counterparties such as prime brokers which are EU regulated banks. European rules on market abuse and insider trading apply fully to hedge fund managers intervening on a European financial market.”
He said the situation in Europe is very different to the US, adding: “Our analysis suggests that there are currently no regulatory gaps which call for EU-level intervention to regulate hedge funds above and beyond those measures that are already in place at national and European level.
“Before taking any action in this area, there would also need to be confidence that any such intervention would actually achieve some useful outcomes. There is a particular danger that hedge fund regulation could stifle the further development of a sector that has thrived on flexibility and a capacity to innovate.”
But he said the Commission was not “turning a blind eye” to the asset class. “The Commission and other EU and national authorities are carefully monitoring the ways in which growth of the hedge fund industry can impact the EU financial system.
“The Commission recognises that hedge funds, private equity funds and other 'activist' investors are increasingly challenging and influencing incumbent management's decision-making and the strategic direction within the portfolio companies in which they invest.”
He added: “Against this background and seeing the downsides of rigid regulation we do not intend to take further action at EU level at this time but I do want all supervisors to take their responsibilities seriously in this area.”