Financial stability and capital requirements
Regarding financial stability, capital and regulatory coverage, the Rasmussen report says, among other points, that capital requirements should apply to investment firms on the basis of risk rather than the particular type of entity. The interests of investors and loan originators should be aligned, either by obliging originators to retain a portion of securitised loans on their own books or by measures with equivalent effect.
Valuation of illiquid financial instruments, access to venture capital
MEPs want to see principles based legislation on the valuation of illiquid financial instruments and better transparency requirements on prime brokers. They say there should be a harmonised EU-wide framework for venture capital and private equity, especially to ensure cross-border access to capital for SMEs.
Takeovers: information for employees, no "asset stripping"
Employees of companies which are taken over should always have the same rights to information and consultation under EU law, including when private equity investors or hedge funds are involved. The Parliament says measures should be introduced where needed to avoid unreasonable asset stripping of companies taken over by private investors. Capital rules should ensure the level of leverage is sustainable for both the private equity firms and the target company and there should be no unfair discrimination between different types of fund using similar strategies. Similar points are made in the Lehne report, which asks for rules forbidding the "plunder" of companies by investors, and also asks whether and how banks might be held responsible, in some circumstances, for the use made by investors of the money they lend. MEPs also want a review of the relevant parts of the Transfers of Undertakings Directive.
Conflicts of interest and market concentration
Measures are also needed to tackle conflicts of interest within financial institutions of all kinds. Credit rating agencies should separate their rating business form any other services they offer, such as advising on structuring transactions – and there should be a mechanism for EU-review of these agencies.
The effects of market concentration in the financial services industry should be given a general review by the Commission’s Competition Directorate General, and assess among other things, whether there is legislation favouring incumbents which needs to be removed.
Wide-ranging review to find gaps in legislation
Finally Parliament asks the Commission to review all existing financial market legislation to identify any gaps regarding hedge funds and private equity and put forward any legislation needed for better regulation of these or other actors.
Transparency requirements
Regarding transparency, in adopting the Rasmussen report, MEPs call for a European Private Placement Regime, which would allow for the cross border distribution of investment products, including alternative investment vehicles (such as hedge funds), to eligible groups of sophisticated investors. This would involve disclosure of their general investment strategy, leverage, risk-management and portfolio valuation methods, the source and amount of funds raised, rules for transparency on top executives remuneration and registration of shareholders beyond a certain proportion.
In the Lehne report, Parliament expands on this, calling for contract terms for alternative investments to provide “unambiguous disclosure and management of risk” and “full transparency of managers’ remuneration systems through formal approval by the general meeting of the company’s shareholders.”
Mr Lehne said: "There is a need for harmonisation in the banking sector to reduce risks in the financial markets", referring to current financial crisis.
The European Parliament also wants the Commission should consider whether hedge funds and private equity investors should be required to register and identify shareholders beyond a certain proportion.
Securities lending and voting on borrowed shares
Parliament wants more transparency on voting by hedge funds in general meetings, calling for exploration of whether intermediaries should be obliged to enable original shareholders to participate actively in voting. It wants to see a code of practice on how to rebalance corporate governance structures to reinforce a long-term orientation. MEPs ask for an investigation of securities lending and voting on borrowed shares. It also asks whether reporting requirements should apply to cooperation agreements between several shareholders.
