We should have expected more regulation post-crisis, but the EU is in danger of staging a farce It would have been strange, let us be clear, if the astonishing events of 2008 and their aftermath had not led to serious questions being asked and more robust regulation being contemplated. The global economic order was brought to its knees and we only avoided a 1930s-style collapse because of huge international intervention designed to save the banking system. That reality is what has made this downturn fundamentally different to those of the 1970s, 1980s and 1990s, and it should not be forgotten. We all refer to what has occurred over the past five years as "the financial crisis," not "the business crisis" or even "the economic crisis." This logical choice of language reinforces the fact that what has been witnessed is an institutional or systemic failure, largely self-induced, through which the banks in effect introduced a cancer into the wider economy and as a result the whole developed world has endured a form of collective chemotherapy, from which we are only now emerging. Some substantial change in the British and European regulatory regime was inevitable and welcome. The danger in the AIFM Directive regime is that it reaches far beyond rational correction for recent trauma. It encompasses a wide range of activities - most prominently the radically different sectors of private equity and hedge funds - which by common consent had nothing to do with the financial crisis, but decides to regulate them regardless. It treats private equity, which typically involves the outright ownership of businesses for quite a number of years, as if it were the same as hedge funds, where the hold period is often months, weeks, days, even hours. It determines that any entity with funds under management in excess of €500m (£430m) falls within its scope, so capturing the bigger of the venture capital firms whose mission is so different from investment banking as to make the very idea of them falling under the domain of an EU regulator close to laughable. It is an exercise in disproportionality writ large, yet there is little choice now but to seek to make the best of matters. That ambition would be more straightforward if the regulator established under the AIFM Directive were actually allowed to regulate without interference. The European Securities and Markets Authority (ESMA), based in Paris, has spent the past two years aspiring to establish its reputation. In all fairness, it has proved far less political and much more interested in the technical detail than might have been anticipated. Its officials have conducted serious consultation exercises and sought to understand the inner workings of the industry which they have been charged with supervising. Left to its own devices, ESMA could strike an optimal balance between proper investor protection and encouraging enterprise. Its leadership also appears inclined to allow national regulators autonomy in how to craft detailed rules in their countries, permitting them to be policemen, not traffic wardens. Alas, even before midnight chimed last night and the new regime came into place, the European Commission has shown signs of wanting to regulate the regulator excessively. With mere days to go before the new rules came into place, it overturned a key element of ESMA's interpretation so that the most elementary questions of what sorts of funds are considered to have what kind of basic features (open-ended or closed-ended) have suddenly become profoundly uncertain. It is imperative that national governments make it clear to the Commission that it does not have the expertise to engage in such interventions. If it carries on like this, then the impact on an industry which supports around 3,500 companies in the UK (90pc of whom are SMEs) and about 21,000 firms in the EU could be substantial. It is a tragedy (and farce) that at a moment when Europe needs growth, those with the resources to support it are meeting their lawyers instead of their entrepreneurs. Businesses in Britain and Europe have proved resilient over the past few years. They can survive with the equivalent of an ineffective autopilot, misplaced maps and propellers that need replacing. What private equity and venture capital cannot do is to operate with no sense of regulatory direction. If the AIFM Directive is to work, then Brussels must allow its own regulator to set a course and stick to it. Tim Hames is Director General of the British Private Equity and Venture Capital Association (BVCA)