Brussels, 23/02/2010 (Agence Europe) - On Tuesday 23 February, the MEPs on the European Parliament's economic and monetary affairs committee discussed the draft directive on alternative investment fund management (hedge funds, speculation and investment capital funds, for example). Lauded for his work, the EP rapporteur, Jean-Paul Gauzès (EPP, France), welcomed the MEPs' positive attitude in helping prepare upcoming legislation that he said would be effective and pragmatic. Discussions on the mountain of amendments (some 1669 in total, or a whole “forest's worth”, as Gauzès put it) will continue on Tuesday 16 March and the economic and monetary affairs committee will vote on the draft report on Monday 12 April.
Recommending that the jungles of the financial system be cleared, Gauzès believes the scope of the draft legislation should follow the European Commission's suggestions (see EUROPE 9892) and be as broad as possible, and cover all fund managers not managing harmonised investment funds (UCITS). He said the draft directive should apply to all alternative investment funds without exception from the start and should be proportionate because some funds only cover one country and are already regulated by the member state in question, and should therefore not be covered by a new layer of legal requirements (closed funds in Germany and FCPI funds in France, for example). Pointing out that other funds exist that only cover one country (like British investment trusts and Swedish family trusts), Wolf Klinz (ALDE, Germany) said that funds that are not too-big-to-fail should only have to meet the new directive's transparency rules. Robert Goebbels (S&D, Luxembourg) and Sven Giegold (Greens/EFA, Germany) want to ensure that all fund managers are covered by the legislation, while Astrid Lulling (EPP, Luxembourg) expressed concern about the attempts to send the financial markets back into member state control by describing certain funds as operating in only one country.
The rapporteur has changed his mind on how funds set up outside the EU should be dealt with. He initially recommended a more conservative approach, but now recognises the benefits of the European Commission's draft legislation, and said he was now recommending a 3, 4 or 5 year transition period during which member states' private investment rules will continue to apply and funds set up outside the EU can continue to be sold. During the transition period, the Commission would examine whether other countries' legislation was on a par with EU rules. If so, then funds from that country can be sold across the EU but if not, the sale of the funds would be banned in Europe. The rapporteur has added a clause to make it possible to continue to sell funds from outside the EU that were already on sale in the EU before the new directive comes into force. Klinz likes this idea and suggested that a system be set up to introduce a system whereby EU rules would apply in addition to the rules applying in the member state (rather than an EU system covering the whole of the EU) for such funds for which the “EU passport” cannot be issued. Happy with the rapporteur's suggestions, Syed Kamall (ECR, UK) pointed out that equivalent was not the same as identical. Commenting on speculators' attacks on Greece at the moment, Giegold said that strict control of funds from outside the EU was needed if they sold products within the EU. Goebbels said that while the EU should not become a fortress Europe, it would make sense to make it easier to sell funds established within the EU rather than funds from elsewhere in the world. He said that many investors want an EU label on alternative investment funds to vouch for their high quality and security. Lulling said that the rapporteur's approach was very risky because it could create an uneven playing field by allowing funds to circulate in the EU that are covered by the directive, alongside funds that are not covered and therefore not subject to the same rules. She said that it was a good idea to be able to buy funds from outside the EU as long as they have to meet the same quality standards as EU funds.
The MEPs also discussed issues like funds' leverage, naked short selling and asset stripping by some asset management funds. Backed by the Greens, the Socialist party at the EP will only support the draft directive if the compromise version includes restrictions on asset stripping and short selling, explained Udo Bullmann (S&D, Germany), adding that this issue was crucial to the S&D. One must not confuse leverage with risk, warned Vicky Ford (ECR, UK). Short selling is not a problem in and of itself, argued Peter Skinner (S&D, UK). The chair of the economic and monetary affairs committee, Sharon Bowles (ALDE, UK) wants the issue to be decided upon in the review of the insider trading and market abuse directive, EU Directive 2003/6/EC. Klinz said that asset stripping was not a manoeuvre indulged in by many funds but given its high visibility and serious impact, it had to be dealt with. Kamall disagreed with the rapporteur's view that bank bonus and pay rules should also apply to the alternative funds industry. (M.B./transl.fl)