Lords slam EU's financial crisis response

Europe's response to the global economic crisis was rushed and could have unforeseen consequences, the House of Lords EU Committee has said.

In its report on the response to the financial crisis, the panel said the EU failed `to follow their own Better Regulation Principles' when it voted on urgent reforms to address the escalating crisis, and called for closer scrutiny on the effect of the measures.

`The content of some proposals, especially those on regulation, of alternative investment funds, was rushed with insufficient consultation and a weak assessment of likely impacts,' committee chairman Lord Woolmer said.

Pressure from Europe forced a carve-out of fair value rules at the end of last year as jittery politicians pushed for changes to smooth out the volatility affecting financial instruments.

Criticism focused on the EU's reforms passed in April, which forced all alternative fund managers, including hedge funds, private equity funds and real estate funds, with portfolios exceeding €100m to seek authorisation.

`Witnesses have raised questions over whether rapid legislative action to regulation alternative investment funds is necessary…there have been many questions raised over the effect of the proposal on EU institutions in the global market,' the report said.

`Rapid action must not come at the expense of thorough consultation, impact assessment and risk analysis by the commission in line with their own Better Regulation principles. Where necessary, the Commission should review the effectiveness of emergency legislation, to check that it is achieving its original objectives.'

The commission also criticised the government's `less than fully developed' view on moves to set up an EU financial supervisory body and urged ministers to `remedy this if it is to influence final decisions in the coming months.'

While Lord Woolmer commended the government moves to strengthen EU-wide financial supervision, he was less than satisfied with the UK's influence in shaping regulation.

`The UK government must ensure these national interests are properly reflected in new regulations or in structural reforms,' he said.

`The UK government has appeared to be behind the ball game at times.'