...when it has to regulate complex financial sector, is that it might have the opposite effects that financial regulation is supposed to have. The European Union intention to regulate of hedge funds and private equity funds might risks to be counterproductive. Sinead Cruise from Reuters explains the heart of the problem:
A central plank of the new rules, which will be brought in from July, involves money managers who market funds in the EU being required to work with independent depositaries. These are banks that, for a fee, track what the manager does with clients' money and agree to cover investor losses in the event of unauthorised trading. Appointing a depositary is supposed to prevent a repeat of last year's MF Global debacle, in which $1.6 billion of client assets were allegedly used to top up bad bets that the now-bankrupt broker had struck with its own money. But it remains unclear how many funds or managers these financial custodians will be willing to backstop, or how much they might charge for the service.
This will be certainly be very costly for the industry, which risks driving many funds "underground", that is unregulated location, thereby concentrating the risk that the regulation want to reduce into fewer hands.
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