Hedging its Bets: The UK and the Politics of European Financial Services Regulation

Some argue that European financial services regulation is witnessing a shift from a market-making' to a market-shaping' paradigm after the global financial crisis. This so-called new' political economy explanation stresses the role of ideas to understand this change. We consider this claim by providing an in-depth examination of recent European hedge fund legislation from the perspective of two key market-making' coalition members: the UK government and the hedge fund industry. We accept that the legislation represents a set-back for the market-makers' but question whether it represents a victory for the market-shapers'. Moreover, we cast doubt on the causal role of ideas, calling for a domestic politics approach.