Business World

Monday 27 February 2017

Hedge fund 'passport' proposal wins EU approval

Ben Moshinsky and Jonathan Stearns

A panel of European Union lawmakers approved a proposal to force hedge fund managers outside the EU to agree to transparency standards in exchange for a so-called passport to market to investors in the region.

The European Parliament’s economic and monetary affairs committee voted for the measure yesterday in Strasbourg as part of a package of tougher rules for hedge-fund and private-equity managers.

The full EU Parliament is due to give its verdict on the draft legislation, which the US has opposed, in July.

“It’s very important,” Jean-Paul Gauzes, the French lawmaker who sponsored the bill in the parliament, said in an interview. “We have to bring order.”

The overall law, which would also see investment managers subject to restrictions on bonuses and how much debt they can use, was passed with 33 votes in favour, 11 against and three abstentions. It was opposed by UK conservative members of the committee.

“We’ve adopted protectionist, fortress Europe policy,” Syed Kamall, a UK conservative lawmaker, said after the vote.

The rules will “reduce the return of pension funds” and could “lead to retaliation” from lawmakers in countries outside the EU, Kamall said.

Yesterday’s vote may also set up a clash with EU nations over the final draft of the legislation, which was proposed last year by the European Commission.

Finance ministers are today scheduled to vote on a version of the draft law that would require fund managers to register separately in each country.

Scrutiny

Hedge funds and private-equity firms are under the scrutiny of lawmakers worldwide, who say they are partly to blame for the financial crisis.

Then-British Prime Minister Gordon Brown warned in March that the Alternative Investment Fund Managers Directive may threaten the country’s pre-eminence in the financial services industry.

Finance ministers in March put off a vote on the directive under pressure from the UK, which sought to modify the proposed rules.

Spain, which holds the EU’s rotating presidency, said last week it would push ahead with the legislation without UK support.

Michel Barnier, the EU’s financial services commissioner, said yesterday he prefers giving hedge funds based outside the EU a passport to operate across the region rather than forcing them to register in each of the 27 member states.

He said the transparency proposal approved by the parliament is preferable to the one that will be considered by EU finance ministers today.

Final EU approval of any measures requires an accord with the region’s national governments in a process that could take another year or more. The negotiations with finance ministers “will be difficult,” Gauzes said. “The devil is in the detail.”

Bloomberg

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