Saturday 14 December 2019

Hedge-fund rules approved by EU

Hedge-fund and private-equity regulations were approved by European Union finance ministers after they ended a dispute over requirements for fund managers from outside the EU.

Ministers agreed to give the Paris-based European Securities and Markets Authority powers over a so-called passport system for non-EU hedge-fund managers.

The passport would give managers access to investors across the 27-nation EU with a single registration in return for signing up to transparency rules.

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-UK Prime Minister Gordon Brown said in March that the Alternative Investment Fund Managers Directive may threaten the country’s pre-eminence in the financial- services industry. The US has also opposed earlier versions of the draft law.

“For the first time we can say this sector is under control,” Swedish Finance Minister Anders Borg said at a meeting of finance ministers in Luxembourg today. “It’s an open solution, one where third-country funds can be part of the market.”

Belgium, which holds the rotating EU presidency, will hold talks with representatives from the European Parliament and European Commission to decide on a final version of the law.

Emergency powers

ESMA’s role in administering the passport system will be phased in over several years under the proposals agreed to at today’s meeting of finance ministers.

The proposed agency, which starts work on January 1 as part of an overhaul of EU supervision, will also have emergency powers to shut down hedge funds that pose a threat to the financial system.

The deal ends a dispute between the UK and France over the treatment of hedge-fund managers from outside Europe.

The disagreements led to the cancellation last week of scheduled negotiations with parliament representatives on the final wording of the rules.

“It is indeed a compromise and we probably could’ve come up with something better,” French Finance Minister Christine Lagarde said.

France had originally proposed that non-EU fund managers be forced to register with the financial regulator in each EU nation, a plan criticised by the US and the UK for being discriminatory.

The passport system “meets the test of non-discrimination” that Group of 20 nations endorsed in June, US Treasury Secretary Timothy Geithner wrote to Lagarde, UK Chancellor of the Exchequer George Osborne and German Finance Minister Wolfgang Schaeuble earlier this month.

Bonuses, debt

The measures will also set restrictions on investment managers’ bonuses and on the use of debt.

“There is still much in the directive that will be difficult to implement for the industry,” the Alternative Investment Fund Management Association said in an emailed statement. “But the impact will be far less severe than if something close to the original proposal had been agreed.”

Michel Barnier, the EU’s financial-services commissioner, welcomed today’s agreement, saying it paved the way for “robust” new rules.

Finance ministers also discussed plans to set up a special insolvency system for failing banks that could see unsecured creditors of crisis-hit lenders accept mandatory losses.

Failing banks

“We don’t want member states to be obliged” to step in to save failing banks, Barnier told journalists at a press conference in Luxembourg today.

Banks would also contribute to a network of resolution funds to be tapped if a lender faces insolvency, rather than resorting to public money.

Lenders should pay a levy based on the size of liabilities on their balance sheet to fund the system under the plan, scheduled to be published by Barnier tomorrow.


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