EU nations back hedge fund curbs over British objections

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EU nations on Tuesday agreed the need for new curbs on the trillion-dollar hedge fund industry, overriding objections by the new British government.

On a key issue for European governments tired of what they see as speculators' attacks on the shared euro currency, ministers "agreed a mandate for negotiations with the European parliament" to harmonise hedge fund regulation across the 27-nation bloc, the EU said.

Home to 80 percent of Europe's hedge fund industry, Britain wanted funds based in Commonwealth outposts in the Caribbean, for example, but managed in the City of London, to be able to sell to all of Europe's half-a-billion population on the strength of British regulation alone.

That is the current state of the game but in only a slight nod to London's concerns, ministers "took note of remaining concerns expressed by delegations, for instance with regard to third country rules," the EU said.

The EU's Spanish presidency will now open negotiations with the parliament on May 31 on a new legislative text expected to make it much tougher for non-EU funds to sell their products across the single market.

To get what has been dubbed their EU 'passport,' these funds will have to submit to much tougher European regulation on transparency, management and capital levels.

A European diplomat said that Britain had at least secured recognition that the 'passport' issue had still to be fully worked through, saying that "the door is still open on this one, it means the UK's concerns are in play."

Osborne met separately with Spain's Elena Salgado, chairing the Brussels talks, France's Christine Lagarde and Germany's Wolfgang Schaeuble in a bid to secure that concession, the source said.

US Treasury Secretary Timothy Geithner warned in March that the EU proposals as they stood then would amount to a protectionist onslaught on the rest of the world's financial services industry, helping Osborne's predecessor to win a pre-election reprieve on the issue.

European parliament lawmakers voted late on Monday to call for different categories of hedge funds, potentially allowing 'passports' for some of the bigger names, although Osborne has no guarantee that his core demand will be included in the final bill.

A delighted Schaeuble said after the deal was struck that "we are closing a loophole in the regulations," adding he thought that the bill would soon be placed before lawmakers.

© 2010 AFP

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