THE EC AND THE HEDGE FUND CHALLENGE: A TEST CASE FOR EC SECURITIES POLICY AFTER THE FINANCIAL SERVICES ACTION PLAN

This article considers the burgeoning hedge fund challenge in the context of the post-FSAP regulatory and supervisory environment in the EC securities market. While it considers hedge fund risk, it also uses hedge funds as a case study to examine the resilience of the EC's new regulatory and supervisory regime. Four questions are considered: What are the appropriate elements of an EC response to the hedge fund risk chain? Is the EC institutional framework sufficiently robust for the hedge fund challenge? What is the appropriate response to retail investor access risks? What is the appropriate response to the market stability risks raised by hedge funds' large, undisclosed positions across markets? The hedge fund test reveals considerable weaknesses in the post-FSAP regulatory and supervisory structure. The EC's response is likely to be revealing as to the sophistication of its policy-making structures post-FSAP.