Hedge fund rules set for EU votes
A European Parliament committee might approve a proposal Monday night to force hedge funds outside the European Union to agree to transparency standards in exchange for a so-called passport to market to investors in the 27-nation bloc.
EU finance ministers are scheduled to vote Tuesday in Brussels on a version of the rules that would require funds to register separately in each country.
Both proposals have been opposed by the United States and the United Kingdom.
Finance ministers in March put off a vote on their proposal under pressure from the U.K., which sought to modify the law, known as the Alternative Investment Fund Managers Directive. Spain, which holds the EU's rotating presidency, said last week it would push ahead with the legislation without U.K. support.
Michel Barnier, the European Union's financial services commissioner, said Monday he prefers giving hedge funds based outside the EU a passport to operate across the bloc rather than forcing them to register in each of the 27 member states.
He said the transparency proposal, sought by Jean-Paul Gauzes, the French lawmaker sponsoring the bill in the European Parliament, is preferable to the one under consideration Tuesday.
Mr. Barnier said he'll work with finance ministers and the parliament after this week's votes to get "a dynamic compromise," which keeps "the integrity of the internal market."
The U.K Financial Services Authority last year commissioned a report that said the rules would cost financial companies at least £4.6 billion ($6.7 billion) to implement. A spokeswoman at the U.K. Treasury declined to comment.
"I think the U.K. should stand up and fight," Andrew Shrimpton, a former U.K. regulator who now advises hedge funds at Kinetic Partners, said in a telephone interview. "Certainly, U.S. hedge funds will pull back. If this goes ahead, it will damage jobs and reduce the tax base in the U.K."
The finance ministers' vote is scheduled to take place after the parliament decides on its proposals, which give Europe's market regulator authority to ban hedge funds from countries that don't meet internationally agreed tax disclosure rules.
"There is a real risk that it would provoke retaliatory action in non-EU jurisdictions, which would damage the European financial services industry and the whole European economy," the Alternative Investment Management Association said in a letter dated May 12 to members of the European Parliament.
U.S. funds are concerned that the rules may limit their access to European investors, whichever version is finally adopted by the EU. The European Commission will take part in negotiations between the council and the parliament to agree on a single final draft later this year.
"The main issue for hedge funds on this side of the pond is reciprocity," James Chanos, a hedge fund manager and founder of Kynikos Associates, said in an interview in Washington last week. "Will our U.S. regime pass muster for the EU?"