To forge control of a booming but lightly supervised industry, the European Union should steer hedge funds toward its jurisdiction, according to a European Parliament report obtained by Reuters.

But rather than bog the industry down with heavy-handed regulation, the report suggests the EU should use light regulatory action and tax breaks to envelop hedge funds into its 15-nation conglomerate.

"If retail investors are going to invest more in hedge funds, it would be preferable for them to be domiciled in Europe, where there could be better supervision," the report read. In the United States, suggested regulation of the hedge fund industry has been considerably different, as the Securities and Exchange Commission has suggested managers to register with them and supply paperwork that would open them up to intense audits.

Since only 15% of the nearly $500 billion industry’s assets are managed in Europe, it is unclear whether the regulation will take place in the United States or overseas.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.