There is a “risk” European private equity will get unnecessarily “swept up in a wide-ranging and indiscriminate regulatory rethink”, EU commissioner Charlie McCreevy said during a speech before the British Venture Capital Association.
He added, however, 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. He laid out the terms of a review of the “scope, content and performance” of existing European codes of practice he intends to undertake with a deadline of March 2009.
“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,” McCreevy said.
“This does not mean that private equity is entirely off the hook. The 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 said. “Perceived failure to manage these relationships in the context of buyouts has fuelled pressure to regulate private equity activities.”
We must not shackle the private equity industry with regulatory constraints that are neither necessary nor productive.
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 in an interview he believed the existing codes of practice already regulated the industry very well, at both national and European level.
“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 in two steps – the first being to ascertain in coordination with national bodies whether there was any gap in the coverage of the codes. However, he added: “My gut feeling is we are already covering every single thing.”
Echarri said the second step would be to assess whether strong commonality exists between national codes and then look into how they can be expressed more similarly.
“There are an enormous amount of country similarities rather than differences,” he said.