EU leaders warned of hedge fund risk

The Economic and Financial Committee, made up of deputy finance ministers and central bankers from the EU member states, wrote that "hedge funds can contribute to market efficiency and sharing of risks but can also be a source of systemic risks". Governments and the EU should redouble their efforts to better regulate hedge funds, the report warned.

The report was prepared for European finance ministers meeting over the weekend in Vienna, and was leaked to financial media earlier this week.

The committee also identified credit derivatives as a source of concern, noting that assessing the risks involved remained difficult for banks and regulators alike. It also highlighted back-office delays as a source of "wider instabilities in the financial system".

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