The European Commission want to change European Union rules to open up investment funds to customers from other EU states, but has again rej...

The European Commission want to change European Union rules to open up investment funds to customers from other EU states, but has again rejected legislation for the regulation of hedge funds.

More than half of the €5.5 trillion ($7 trillion) invested in funds in Europe are in small "sub-optimal" funds, managing less than €50 million each that face "unnecessarily high compliance costs," the commission said in its White Paper on Asset Management released this week.

The industry could save between €2 billion and €6 billion annually if small funds merged or shared assets, it said.

The European Commission wants new rules for merging cross-border funds and pooling assets, to allow fund managers to supervise funds based in other EU countries and to strengthen cooperation between national financial regulators to counter fraud and other financial crimes.

The proposed changes also include standardising the information on a fund that investors receive. Under the proposals, investors would receive full disclosure of costs and fund performance. Currently, those rules vary by country.

A formal draft for these changes will be tabled late next year to avoid adverse market reaction at legislation that could have unintended consequences, according to the commission.

But EU officials said they had no plans to introduce new rules for hedge funds in the next few years, despite pressure from some national regulators.

Niall Bohan, the head of the commission's asset management unit, said it was a myth that these funds are unregulated.

"We feel that in Europe the risks associated with hedge funds are well addressed by an existing patchwork of national regulations," he said.

"We don't think that the case has been made for us to introduce a European overlay to this system," he told reporters.

But the commission will start to look at new alternative investments, according to Mr Bohan, starting with real estate funds which will be examined over the next 18 months.

The project is part of the commission's wider drive to create an efficient, single European-wide financial market.