The European Union’s draft rules on hedge funds do not go far enough to ensure the funds do not pose a systemic risk, France’s economy minister said on Monday.
The planned regulation is due to be published on Wednesday, with the intention of becoming law. “I do not think it responds to the requirements of transparency, control and appropriate supervision for hedge funds that become of systemic importance,” Lagarde said at a conference on financial markets.
According to a draft of the rules obtained by Reuters earlier this month, the regulations will require that managers of hedge funds and private equity funds be registered, hold a minimum level of capital, and disclose information on borrowing to regulators.
Fund managers using high levels of leverage will have to reveal aggregate borrowing levels to national regulators, it is also expected to say.
France and Germany have been leading a push for tougher regulations, particularly of hedge funds, as part of the G20’s response to the financial crisis, but their push has met resistance from some countries.
“On the hedge funds, some experts say, particularly in this country (the United States), why bother about the hedge funds, they have not created the crisis, which is true,” Lagarde said.
“But equally, the hedge funds total about $1.2 trillion in assets under management at the moment and they clearly use the banking channels for their operations,” she added.
“Now the governments are called on to support the banks, we must make sure that those banks will not be undermined by entities which are not the most important players and about which we have zero information.”
Lagarde highlighted France’s desire to see an even global playing field on regulation and said if improvements were only made on a regional basis this would lead to a fragmented system that would lead to another crisis.
She said the International Accounting Standards Board has “a lot of homework to do” in making sure its guidance matched that of other competitors “so we can compare carrots with carrots and cabbages with cabbages.”
France is angry that the IASB, which sets mandatory accounting rules in the European Union, has not eased its rules on fair-value accounting to response to the change by the US Financial Accounting Standards Board.
On Saturday, Christian Noyer, a governing council member of the European Central Bank who is also the head of the Bank of France, said the EU could ignore the IASB and set its own rules if the body did not act fast. (Reuters)