Title: A tale of regulatory divergence: contrasting transatlantic policy responses to the alleged role of alternative investment funds in financial instability
Abstract:... The global financial crisis (GFC) of 2007–2009 harbingered sweeping changes in the regulatory environment of financial markets and institutions throughout the world. Although even before the GFC f...... The global financial crisis (GFC) of 2007–2009 harbingered sweeping changes in the regulatory environment of financial markets and institutions throughout the world. Although even before the GFC financial regulatory authorities—under the pressing need for hedge fund regulation—outspokenly called for hedge fund regulation,1 such efforts faced stiff opposition from the hedge fund industry. Nonetheless, the enormity of the crisis and its economic and socio-political consequences were of such a magnitude that a dramatic paradigm shift in financial regulation was triggered. This paradigm shift was markedly pronounced in the context of the hedge fund industry, the regulation of which lay dormant on the regulatory agenda on both sides of the Atlantic for a long period.2 In the aftermath of the GFC, hedge funds were harshly criticized for destabilizing financial markets.3 Perceived as the legacy of American laissez-faire capitalism, hedge funds faced pungent animosity from the politicians of continental Europe.4 Calling for their abolition, politicians demonized hedge funds as being ‘crazy’ and ‘hellish’, which ‘fall like a plague of locusts’ over companies, ‘devour everything, then fly on to the next one’.5 In the midst of the financial crisis, hedge funds and private equity funds were further vilified as ‘“aggressive” gangs of “speculators”, bent on “snapping up firms, sacking workers and creaming off profits”’.6 Against such a hostile backdrop, the waves of regulatory reforms soon engulfed the hedge fund industry on both sides of the Atlantic.Read More