The European Parliament will support calls tomorrow for Europe-wide legislation aimed at making the inner workings of hedge funds and private equity more transparent.

The proposals - championed by Poul Nyrup Rasmussen, the Socialist MEP and a former Danish Prime Minister - call for clear rules for these financial players, whose influence on the economic landscape is increasing.

MEPs want the European Commission to present, before the end of the year, legally binding minimum transparency rules on how investments are financed. These rules would also cover the qualifications of managers, possible conflicts of interest, registration of hedge funds and disclosure of ownership structures.

Peter Skinner, a Labour MEP and the party's spokesman on financial services, said yesterday: “Current self-regulation attitudes are not enough to arrive at satisfactory conclusions, especially in the light of the current crisis. This is an important step to tackle current problems, including lack of transparency.”

The private equity industry - which defends its record of helping small companies - says that it is considerably more transparent than it was a few years ago. Javier Echarri, secretary-general of the European Private Equity and Venture Capital Association, said: “We say legislation is not necessary as it is already in place in different member states. It would be nonsense to come up with European legislation.”

The industry's critics argue that the funds are not subject to the rules of disclosure and transparency that apply to others in the financial sector. They also want hedge funds and private equity firms to be required to operate in the best interests of investors and employees as well as fund managers.

The recent financial turmoil has strengthened the hand of European socialists, who have taken the lead in pressing for legislation. They have won the support of the Christian Democrats and Liberals, ensuring that the initiative will be approved tomorrow. Even if the Commission tables legislative proposals by Christmas, they are unlikely to be agreed for at least 18 months.

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