The ECB is worried about going old school on hedge funds. It recognizes there are some significant risks involved in reverting back to an environment overly rich in regulation and has spelled out its concerns.

“The ECB sees a potential risk of regulatory arbitrage between alternative investment fund managers, insurance companies and credit institutions, among which the proposed directive does not create a level playing field,” it said.

In the end, this going to come down to a test of wills to see who joins the EU’s initiative. They are willing to risk putting an end to the party and betting that others will follow in their footsteps. Much like another person familiar with old school ways, Frank the Tank.

The EU needs to find a way to avoid running down the middle of the street drunk on regulation, alone, and fully exposed. They need something catchy and convincing to get everybody else on board.

“The ECB urges the Commission of the European Communities to continue the dialogue with its international partners, in particular the United States, to ensure a globally coherent regulatory and supervisory framework.”

That is probably not going to do it for too many people. So really the question boils down to which do you prefer- the sound of ‘make money money’ or hoping that when the loaded naked guy says ‘there’s more coming’, he’s right.
ECB says EU hedge fund plans could spark exodus [Reuters]