Europe backs 'strict' hedge fund curbs, despite Britain
Europe agreed the need for "strict" new curbs on the trillion-dollar hedge fund industry on Tuesday, despite stiff resistance from fledgling British finance minister George Osborne.
On a totemic issue for euro governments tired of what they call "speculators'" attacks on their currency, EU finance ministers "agreed a mandate for negotiations with the European parliament" to standardise hedge fund regulation across the 27-nation bloc.
New laws covering alternative investment funds, which also affects huge private equity and real estate funds, would introduce harmonised EU-wide rules based on "compliance with strict requirements."
German finance minister Wolfgang Schaeuble said that "we are closing a loophole in the regulations."
Britain, home to 80 percent of Europe's hedge fund industry, has fought for months to ensure that funds based in Commonwealth outposts in the Caribbean, for example, but managed in the City of London, be able to sell to all of Europe's half-a-billion population on the strength of British regulations alone.
In a slight nod to London's concerns, EU ministers "took note of remaining concerns expressed by delegations, for instance with regard to third-country rules."
No vote was required, the ministers agreed that the EU's current Spanish chair should open negotiations with the parliament on May 31.
Osborne said he had been given "something of a hospital pass" by predecessor Alistair Darling with which to negotiate, but that he had "got the reservations of the UK noted."
Concerned that the proposed law "is not entirely consistent with the single market," he warned that it would need to be "if we want a successful Europe to be the home of financial services.
"There is still very much to play for," he underlined, citing support in one-on-one talks with France, Germany, Spain and Sweden.
European parliament lawmakers also voted late on Monday to echo Britain's concerns, although Osborne has no guarantee that his core demand will be included in the final bill.
United States Treasury Secretary Timothy Geithner warned in March that the legislation would amount to a protectionist onslaught, helping Darling to win a pre-election reprieve.
Managers argue that the need to obtain regulatory approval in each of the other 26 EU countries will cost millions of pounds in fees and could lead to an industry exodus to Switzerland and the Middle East.
European partners had warned Osborne beforehand that he would have to accept the majority will on an industry in which top earners can pockets billions each year.
"That's how it is in Europe," Schaeuble had said. "We are a union, and there are decisions that go against individual countries, but that can happen to any one country.
"A clear majority want this law to go through and consider it necessary," Schaeuble had underlined.
Hedge funds lost some of their lustre during the economic downturn, but still handled between 1.2 trillion and 1.3 trillion dollars worldwide in 2009.
Under the new rules, European firms could be forced to curtail the amount of leverage they use, make regular disclosures about their portfolios and be forced to hold their assets with European banks.
Non-EU hedge funds would face similar requirements.
Speaking after meeting with Geithner in New York last week, the EU's financial services commissioner Michel Barnier insisted he would "work on a balanced solution that will avoid all kinds of protectionism.
"As far as the transatlantic relationship goes, of course I will see to it that it is not discriminatory."
However, he added: "I am not here to do a deal with the United States... this agreement is between Europeans."
© 2010 AFP