McCreevy’s bid to regulate hedge funds labelled ‘hasty and unjustified’

COMMISSIONER Charlie McCreevy’s bid for Europe to regulate the controversial €2 trillion hedge fund industry is unjustified, hasty and counterproductive to Ireland’s interests.

This is according to representatives of the Department of Finance, the Financial Regulator and the Irish Funds Industry Association, who addressed the Oireachtas Committee on European Scrutiny yesterday.

The speakers said they backed the spirit of a proposed directive, to regulate specialist investments, but the Commission’s proposals went too far and lacked appreciation of the industry’s complexities.

Representing the Department of Finance, Colm Breslin said parts of the directive had not been explained.

“This directive was driven in great haste, is very confusing on many fronts and is not the solution most member states had desired,” he said.

When he introduced the proposed directive earlier this year, Mr McCreevy said it would bring greater oversight to the inherently risky sector.

Mr Breslin said there was a “misconceived notion” that hedge funds were responsible for the economic crisis.

Martina Kelly, who heads European negotiations for the Financial Regulator, said it supports the effort to improve regulation, but that in many areas the Irish regime worked well.

“The proposal goes beyond a lot of what we do want and introduces restrictions that are unjustified,” she said.

Ms Kelly said it would be very difficult to implement the “blunt instruments” included in the directive to funds which may have links to Europe but are based in places such as the Cayman Islands.

Labour Party spokesperson on European affairs Joe Costello queried the profile of investors to these funds, and reflected on the benefits of “overarching regulation” to protect people. He asked what were the risks to the Irish economy posed by the hedge funds.

The panel said €632 billion worth of investment funds are authorised in Ireland with approximately €100bn linked to Irish investors.

However, Gary Palmer of the IFIA said the affects to the economy would not be to lump sums but to the 5,200 people employed to service 10,700 funds either based or administered here.

He said the directive will serve to erect barriers to the movement of money in what is a global industry.

“The limitations inherent in the directive will reduce the investment choices available to investors [in Ireland],” he said.

Mr Breslin said such were the difficulties with the directive that ambitions to advance it before the end of the year were unrealistic.