Hedge funds and Private Equity - PES

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As far as the hedge fund and Private Equity industry is concerned, however, Art. 47 para 2 EC
is a more obvious regulatory norm but its application must be considered on a case by case
basis. Regulations in this area have the aim of coordinating legal and administrative provisions on
the commencement of independent activities. A regulation could therefore apply in the case of
investment companies themselves. Fundamental money market legal provisions are already
founded on Art. 47 of the European Treaty: for example, the Markets in financial instruments
directive (MiFiD). Particularly the Directive on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities
(UCITS) is based on this regulation.
MIFID introduces more detailed requirements covering: the organisation and conduct of
business of investment firms, and how regulated markets and MTFs (Market trading facilities)
operate; new pre-and post-trade transparency requirements for equity markets; the
creation of a new regime for ‘systematic internalisers’ of retail order flow in liquid equities;
and more extensive transaction reporting requirements.
Types of firms to be regulated by the MiFID requirements are: investment banks; portfolio
managers; stockbrokers and broker dealers; corporate finance firms; many futures
and options firms; some commodities firms.
Most firms that fall within the scope of MiFID will also have to comply with the new
Capital Requirements Directive (CRD), which is similar to Basel II, which will set requirements
for the regulatory capital which a firm must hold.
MiFID will require transaction reports for any instrument admitted to trading on a regulated
market including commodity instruments e.g electricity, oil and metals admitted to
trading on exchange.
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Looking to the challenges of offshore activities, there is much work to do. In accordance with
Article 56 of the European Treaty – free movement of capital and payments, there is in principle
a comprehensive prohibition on restrictions also in relation to third countries, which may be
limited only under the conditions laid down in the exceptional provisions of Art. 57-59.
Article 59
Where, in exceptional circumstances, movements of capital to or from third countries
cause, or threaten to cause, serious difficulties for the operation of economic and monetary
union, the Council, acting by a qualified majority on a proposal from the Commission
and after consulting the ECB, may take safeguard measures with regard to third countries
for a period not exceeding six months if such measures are strictly necessary.
For the regulation of offshore investors or their on-shore resident business partners the basis of
authorisation of Art. 57 para 2 EC can be taken into consideration. According to that, only the
EU, more precisely the Council at the proposal of the Commission, can enact new restrictions
(which hasn’t happened since 1993) on capital movements with third countries, in connection
with direct investments, including real property, with the registered office, the furnishing of finan-