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E-MailThis post comes to us from James R. Modrall and Christophe Wauters of Cleary Gottlieb Steen & Hamilton LLP.
The economic crisis has produced a bewildering array of regulatory and economic responses at all levels of government. It is difficult, if not impossible, to have a complete overview of all these responses. A pattern that has emerged in European responses to the crisis, however, is the increased role the EU plays in laying down common guidelines for Member State actions and in identifying and attempting to remedy shortcomings in the regulation of banks and other market participants.
In its conclusions published on March 20, 2009, the European Council endorsed a greatly expanded European Union role in the regulation of the European financial system, as laid out in the report of the de Larosière Group published on February 25, 2009 (the “de Larosière Report”) and the Commission’s communication of March 4, 2009 (the “Commission Communication”). The EU program will form part of the discussions to be undertaken by G-20 members at their meeting in London on April 2, 2009. The European Council will take the first decisions to strengthen the regulation and supervision of the European financial sector at the June 2009 European Council meeting.
The Commission’s program calls for the adoption of a wide range of regulatory reforms over the course of 2009 and 2010, complementing the regulatory initiatives already launched in response to the financial crisis. Specifically, the Commission proposes to establish a new European financial supervisory body to be operational by the end of 2010; to adopt a number of specific legislative measures to fill gaps in the existing financial regulatory structure; and to create a comprehensive legal framework for retail financial services. If the European institutions adhere to the Commission Communication timetable, a new European supervisory framework will be created by the end of this year and operational in 2010, and an ambitious program of new and amended legislation will be in place to strengthen and harmonize the regulation not only of banks and investment banks, but also of hitherto largely unregulated entities such as hedge funds, private equity firms and CRAs. The Commission’s proposals mirror thematically similar initiatives by Member State governments.
Our firm has prepared a memorandum entitled “Expanding EU Role in European Financial Regulation,” which summarizes the initiatives proposed by the Commission to reshape the European financial regulatory system, together with related initiatives already launched by the European institutions in response to the financial crisis.
The memorandum is available here.
One Comment
In determining the appropriate legislative framework for hedge funds, I find it curious that there has been little mention of bolstering corporate governance. While we can accept that hedge funds ultimately will become subject to some degree of regulation, regulation without ongoing independent policing is just an empty suit. Are boards not in the best position to play a watchdog role in light of the fact that the regulators cannot truly provide ongoing monitoring even with any new transparency or reporting requirements that may be enacted purportedly for this purpose?