ECOFIN, the European council of finance ministers, has decided to adopt a soft approach on the regulation of hedge funds. Member states voted in favour of a voluntary code of conduct and a self-regulatory approach towards the hedge fund industry, but chose not to impose any further regulation at its latest meeting. German finance minister Peer Steinbrück said after the meeting: "We all agree that a regulatory approach is the wrong one, so we are taking on the indirect approach, which everyone says is the right one. "The amount of money being administered by hedge funds is increasing exponentially. It is not just experts, but also issuing bank governors are wondering about what might happen if there was a downturn, what happens if there is a change of interest rate, what about leverage effects? These are not just daydreams, they are real issues. The real experts on financial markets ask these questions and hedge-fund managers are beginning to raise them too." This light stance on regulation foresees a "close supervisory monitoring of credit institutions' exposure to hedge funds and progress in upgrading their internal risk management systems," Mr Steinbrück said. The council recognised the importance of the significant contributions that hedge funds make to the efficiency of the financial system, but at the same time acknowledged the "potential systemic and operational risks" that they represent and called on creditors and investors to remain vigilant. Internal Market Commissioner Charlie McCreevy said: "I would be very supportive of the industry adopting a voluntary code of conduct." He added: "At this stage, I do not see the need for a Community initiative in this area. The case for this has not yet been proven."