EU overrules Britain on hedge fund controls
EUROPEAN Union finance ministers backed stricter controls for hedge funds and private equity groups yesterday, handing a defeat to the UK which has argued that too much regulation could strangle the industry.
The draft from the finance ministers requires managers to register in each EU country they want to market their funds. It would also set restrictions on investment managers' bonuses and on the use of debt.
Britain is worried the new law will drive its financial services elite out of London's West End, home to eight out of 10 European hedge funds, to cities such as Geneva.
Dublin's International Financial Services Centre is also home to hedge funds and many custodial companies that supply services to hedge funds in Europe, but it is less likely to be affected because the proposals are aimed at managers rather than back office staff.
Still, Ireland has joined the UK, the Czech Republic, Malta, Sweden and Austria in recent months to express concerns about the proposals. A source in the Department of Finance said yesterday it expected some of the proposals could be watered down when the European Parliament debated the measures.
Ireland was represented yesterday by Labour Affairs Minister Dara Calleary, while Finance Minister Brian Lenihan stayed in Dublin to attend government meetings and introduce a Dail bill to support Greece.
The proposals, which puts hedge funds under the eye of a pan-European watchdog for the first time, are part of a wider set of pledges by world leaders to create a more stable financial system after the global crisis.
Hedge funds have been accused of exacerbating Greece's borrowing difficulties by betting against its debt, although there are few trading records to prove how much betting took place.
"We are determined to accelerate the pace of regulation," Wolfgang Schaeuble, Germany's finance minister, commented. "Up until now, this was not regulated," he said of the hedge fund and private equity industry. "This hole will now be closed."
Britain fought hard to water down the law and was still hoping to overturn a provision that refuses a single licence for foreign funds to do business across Europe, something US Treasury Secretary Timothy Geithner has also objected to. But London's objections were overruled. The new rules are likely to take effect around 2012 after debate in the European Parliament.
The clampdown on hedge funds is part of a broader revamp of financial services in Europe, spanning curbs on banker pay to demanding lenders put aside more for unpaid loans.