2011 will be remembered as the year of rules and regulations in the Financial Services Industry. Thanks to the Dodd-Frank Bill, many industry regulators will be handing down numerous sanctions this year to Wall Street and beyond. Basel III will be hitting banks, stricter debit card rules will be applied to retailers, derivatives operations and processes are likely to change and social media compliance has been brought into the mix. Needless to say, rules and regulations are shaping up to be the stars of 2011, most of them affecting how things will run in the United States. But now it looks like some are also being stressed abroad.
The European Securities & Markets Authority (ESMA) is expected to publish new regulations for European Union (EU) hedge funds later this year. After assuming responsibilities from the Committee of European Securities Regulators this past January, ESMA is expected to impose over 100 new rules on the hedge fund community. These new measures will affect things such as operating conditions, transparency and leverage.
While no one is sure what the rules will state exactly, fund managers are still anxious in anticipation. Mainly they are worried that ESMA plans on adopting a one-size-fits-all approach to hedgeEU Hedge Fund resized 600 funds, which would cost small fund managers big dollars. Another concern is how this will affect how “passports” will operate and be distributed. Currently, passports can be given to non-EU hedge funds to market throughout the EU, but this could be restricted by ESMA.
ESMA’s tentative plans have led to many questions throughout the EU. Could ESMA be limiting the number of investors that come to set up shop in the EU? As it is now, people are already limiting the amount they will invest in startup funds and concentrating on more established funds in the EU, so will these new ESMA rules push this even further? Could this be the death of the startup fund in Europe? Only time will tell. What do you think?