Hedge funds face more regulation under deal struck by EU ministers
Published 20/10/2010 | 05:00
EUROPE's finance ministers have finally struck a landmark agreement on hedge fund regulation, bringing the often-controversial industry within a whisker of EU rules that could curb bonuses, restrict investment decisions and force greater disclosure.
The agreement, which comes more than 18 months after European policymakers unveil- ed their original proposals, was announced in Luxembourg yesterday.
The initial draft of the rules met with fierce opposition from the hedge fund industry, while more recent debates were frustrated by an impasse between the UK and France on where the hedge funds should be regulated and how non-EU hedge funds should be treated.
Ireland, home to fund administrators who service more than 40pc of the world's hedge funds assets, had "initially had some concerns" about the new rules but was pleased with the deal hammered out yesterday.
"We have made innumerable compromises," Belgian finance minister Didier Reynders said yesterday, while EC internal markets chief Michel Barnier promised "lots of change" would flow from the new rules.
The "compromise" sees Europe row back from plans to have all hedge funds trading across the EU authorised by a single authority, as proposed by France, in favour of the UK-advocated "passport" system that will allow hedge funds authorised by one regulator to operate in all 27 EU countries.
In return for agreeing that measure, France got a concession on passporting for hedge funds based outside the EU, and those funds won't fall under the new regime until 2015.
Brussels has also toned down some of the more contentious technical elements of the original plans, including making hedge funds fully liable for any outsourced work carried out on their behalf -- which could have impacted on Dublin's thriving funds administration hub.
Elements that remain include forcing private equity and hedge funds to hand over more information on what products they are trading, subjecting them to summary bans on so-called short-selling and curbing bonus levels. A new EU supervisory authority is also being created, with 72 powers of intervention.
"It was indeed a compromise . . . we could have probably come up with something better," said French economy minister Christine Lagarde, while UK Treasury secretary Mark Hoban described the deal as a "significant advance" from a previous version of the plan.
A spokesman for the Department of Finance said Ireland "welcomed" the rules, adding that they would "help improve confidence" in the hedge funds industry.
The Irish Funds Industry Association's Kieran Foxe stressed that many of the new rules were already incorporated into the Financial Regulator's "excellent" existing practices.
Issues like bonuses would be more pertinent for countries with asset managers than for Ireland's fund administrators, he said, adding that it was "fantastic" that Irish-regulated funds would be able to automatically sell into all 27 EU countries.
The rules, which could pass through the European parliament within days, were triggered by concerns that hedge funds were exacerbating the crisis in global financial markets by profiting from the downfall of companies, and even countries.