Hedge funds clipped
October 26, 2010
The European Union has agreed a deal to apply strict new legislative curbs on the hedge fund industry.
The EU is seeking to place financial markets on a tighter leash, and impose greater transparency on alternative investment funds. Some believe they contributed to the 2008 financial crash by destabilizing the markets.
"This directive is to enforce transparency, responsibility and surveillance," the European commissioner responsible for market regulation, Michel Barnier said in a statement. "It aims to ensure that there is no repeat of the financial crisis or any further massive payment from public funds to clean up the direct and indirect consequences."
"Even if the text is not perfect, it's a good start," said Jean-Paul Gauzes, the EU rapporteur on the bill.
Conflict between Britain and France
Previous efforts to approve the legislation had been protracted by disagreements between Britain, where 80 percent of the hedge fund industry is based, and France, which has been spearheading the calls for stricter control.
Last week they settled a two-year-old conflict on who would be responsible for Europe-wide licenses for foreign hedge funds to be traded within the EU.
It was agreed that non-EU hedge fund managers will only be able to obtain passports if they sign up to international standards against money laundering and tax evasion.
A new EU watchdog is due to be launched next year in Paris to set standards for issuing the permits. The European Securities and Markets Agency will have the power to order national regulators to ban hedge fund activity if it poses a risk to national stability.
Members of the European Parliament are expected to vote on the reforms on November 11, paving the way for the new regulation to come into force on January 1. EU member states will then have two years to incorporate the rules into their national legislation.
The content of the legislation will be closely monitored by the US government. US Treasury Secretary Timothy Geithner has expressed fears about protectionist overtones in the French-led bid for industry regulation.
Author: Joanna Impey (AFP, dpa)
Editor: Chuck Penfold