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The 'old' and 'new' political economy of hedge funds regulation in the EU

Lucia Quaglia

Why did the European Union decide to regulate hedge fund managers in through the directive on Alternative Investment Fund Managers? This paper tackles this key question in the multi-level governance of financial services by testing a variety of theoretically-informed explanations against the empirical record. The research dismisses a 'functional' explanation, which would consider the EU's decision to regulate hedge fund managers purely as a rational response to the global financial crisis, as well as 'systemic' explanations, which would argue that this regulatory agenda was push forward by policy-makers outside the EU (eg US or international organisations). By contrast, it is argued that a 'market-shaping' regulatory paradigm have been gaining ground in the EU regulatory space as a consequence of the financial crisis, empowering the coalition of forces sponsoring that paradigm, and silencing the 'market-making' regulatory paradigm advocated by the competing coalition. The EU has also attempted to export some tenets of its regulatory paradigm to other jurisdictions.



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