Ciarán Cuffe
Ceist:151 Mr. Cuffe asked the Minister for Finance the position of the Irish Government in responding to the call of the German Government for greater international regulation of hedge funds. [10151/07]
Amharc ar fhreagraTuesday, 20 March 2007
Ceisteanna (84)
Freagraí scríofa
Firstly, I might just explain to the Deputy that there is no specific definition of what a hedge fund is. Funds with the characteristics commonly associated with hedge funds generally invest in the same asset classes as other investment funds, namely, in equities, bonds, foreign exchange and so on. The main difference with hedge funds is that they are more flexible in terms of investment options than traditional collective investment schemes and they may use financial leverage, including derivatives, to magnify their investment returns.
In Ireland, hedge funds are authorised by the Financial Regulator. As they are a more risky investment than traditional funds, they are reserved for institutional investors and wealthy individuals. They cannot be sold to retail clients, although such clients might have some exposure through funds of hedge funds and through pension funds.
As the Deputy may be aware, the German Presidency raised the issue as to how greater transparency might be achieved as regards hedge funds' activities and this issue has been discussed in various EU forums. As this is an international matter, the issue was also discussed at the G8. The general consensus is that there is no immediate need to design a set of transparency requirements for hedge funds.
Many hedge funds are legally domiciled in offshore financial centres and, accordingly, the EU cannot subject them to mandatory disclosure requirements. However, many of the investment managers and prime brokers associated with hedge funds are based in EU countries and are subject to authorisation and supervision in those Member States.
Moreover, EU rules on the disclosure of significant stakes in companies are now in place. The Transparency Directive provides for the mandatory reporting of major holdings of voting rights, once 5% of voting rights are acquired. Some Member States apply even lower notification thresholds. Other regulatory safeguards also apply. EU rules on market abuse and insider trading (the Market Abuse Directive) apply fully to EU hedge fund managers.
As regards the risk to financial stability from hedge funds, from a systemic perspective this issue concerns the ability of lending institutions to withstand failure of their hedge fund creditors. Exposures to hedge funds by banks are monitored by EU banking regulators and the ECB. The recently introduced Capital Requirements Directive regulates the buffer of capital that banks and investment firms must hold against banking-book and trading-book exposures to all counterparties, including hedge funds. The European Commission and the ECB are continuing to closely monitor the hedge fund sector. The general view is that there is no obvious regulatory gap that needs to be completed at EU level at this time.