EU Socialists call for hedge fund regulation

BRUSSELS (Reuters) - Hedge funds and private equity pose risks to financial market stability and should be regulated more tightly, top Socialist MEPs said on Thursday.

The European Union assembly's second-largest group unveiled a report which it said showed the case for mandatory regulation in a sector that has hit the headlines in recent months for its ever-bigger takeovers and sparked labour union concern.

"We are dealing with hedge funds raising questions of systemic risk," Poul Nyrup Rasmussen, president of the group and a former prime minister of Denmark, told reporters.

Hedge fund TCI put Dutch bank ABN AMRO (AAH.AS: Quotazione, Profilo) into play last month by asking for it to be split up to create more value to shareholders.

Private equity firm Texas Pacific Group came under fire when airline catering firm Gate Gourmet, which it has since sold, sacked hundreds of people.

"The first thing we will move on is transparency and disclosure," Rasmussen said.

Parliament has no power to initiate legislation but the Socialists want to launch a debate to persuade the European Commission to make proposals that EU states could adopt.

The EU legislature has joint say along with EU governments on legislation related to financial services.

"After that we will focus on how can we, through national and EU legislation, protect our companies against undermining their international competitiveness," Rasmussen said.

"We are proposing a whole range of regulations, starting from incentives to direct EU and national regulation," he said, adding this could include a European regulator for the sector.

John Monks, leader of pan-EU labour union group ETUC, warned a seminar organised by the Socialist group that hedge funds and private equity groups faced a "long and bitter fight", accusing them of "asset stripping" and "destroying jobs".

But Dan Waters of Britain's Financial Services Authority told the seminar that a study of risk in the hedge fund sector found that "overall, this is not an alarming picture".

"There is no case demonstrated for the regulation of hedge funds in Europe. It would be a serious mistake to do so," he said.

Portuguese Finance Minister Fernando Teixeira dos Santos said EU finance ministers will discuss sector oversight soon.

"Such a European framework could be based on minimum standards, soft law, recommendation or just robust peer pressure mechanism in order to ensure healthy competitiveness," he said.

But dos Santos, whose country becomes EU president in July, said it was too early to say if mandatory rules were needed.

EU Internal Market Commissioner Charlie McCreevy, responsible for financial services, has repeatedly said no new rules are needed -- to the increasing anger of many lawmakers.

"McCreevy is the last voice in Europe and the United States saying what we need is deregulation. McCreevy is not that important for the moment," Rasmussen said.

McCreevy responded by saying there are rules in place that govern hedge fund activities and their exposure to banks.

"The case for additional legislation at EU level has not been proven but is being kept under review," his spokesman said.

Javier Echarri of private equity industry lobby EVCA told the seminar the sector invested in 8,000 European companies last year and was properly regulated by national watchdogs.