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McCreevy speaks out on European private equity regulation

The EU commissioner for internal markets, Charlie McGreevy, tells the BVCA he doesn't believe private equity should be 'lumped together' with other asset classes for regulatory purposes, but warns the industry needs to increase transparency and improve stakeholder relationships.

The European Union commissioner for internal market and services Charlie McGreevy has warned there is a “risk” private equity in Europe will get “swept up” in a wide-ranging and indiscriminate regulatory “rethink”.

In a speech delivered to the British Venture Capital Association (BVCA) yesterday, McGreevy said that while self-regulation could be the answer for private equity, the industry urgently needed to look into improving transparency and its relationships with stakeholders.

Laying out the terms of a review he hopes to undertake by March 2009 of existing European codes of practice, he said: “We must not shackle the private equity industry with regulatory constraints that are neither necessary nor productive. Otherwise, we will deprive capital-starved industries of much needed equity capital.

“This does not mean that private equity is entirely off the hook. Private equity industry needs to be attentive to the impact of buyout activity on the social economy – and better management of its relationships with key stakeholders,” he added. “Perceived failure to manage these relationships in the context of buyouts has fuelled pressure to regulate private equity activities.”

McCreevy said his review, the results of which will be presented to the European Parliament, would look at three key areas: the coverage of industry codes; the monitoring and mechanisms for promoting compliance; and consistency across Member States.

“This review will not be a white-wash. We will undertake a thorough and critical review. The yard-stick will be the impact and effectiveness of codes. Policy-makers and regulators will want to see evidence that these codes are influencing behaviour and avoiding undesirable outcomes,” McCreevy stated.

Responding to his speech, Javier Echarri, secretary general of the European Venture Capital & Private Equity Association (EVCA), said existing codes of practice already regulated the industry “very well”, at both national and European levels.

“It's obvious the ball is [in] the private equity industry's [court] to demonstrate how good the existing rules are,” he said.

Echarri said EVCA would respond to McCreevy's review by working with national bodies as to whether there were gaps in the coverage of existing codes and to see if there was any similiarities between codes. He said though: “My gut feeling is we are already covering every single thing. There are an enormous amount of country similarities rather than differences.”