Brussels, 16/03/2010 (Agence Europe) - A telephone call from the British prime minister Gordon Brown to the Spanish prime minister, Rodríguez Zapatero, was all it took. On Tuesday 16 March 2010, the Spanish Presidency decided to withdraw the draft directive on hedge funds and alternative funds from the agenda of that day's ECOFIN Council. Despite the qualified majority rule (whereby countries can no longer veto such issues), Spain decided not to isolate the United Kingdom, where 80% of Europe's hedge funds are based and which is in the full swing of election campaigning. Agreement in principle by EU ministers will now be reached in May 2010 at the earliest but the change of timing does not alter the European Parliament's schedule.
ECOFIN Council President-in-exercise Elena Salgado said that more work was required in coming weeks and the Spanish Presidency hoped the directive would be adopted in the first half of the year. She said that the postponement was not a problem, wanting to build the greatest possible degree of agreement by using the time available to ensure more of a meeting of minds. Trusting the Spanish Presidency, EU Internal Market Commissioner Michel Barnier said the European Union had to come up with the goods and regulate the hedge fund industry as instructed by the G20. He said that the fact that hedge funds and alterative funds accounted some days for more than half of the transactions in the money markets was a clear risk to financial stability and properly functioning markets, calling for the directive to be adopted before the summer. At the ECOFIN Council, France said it hoped agreement would be reached as soon as possible. Portuguese finance minister Fernando Teixeira dos Santos said he was astonished that the negotiations were being postponed although there is a huge majority of countries that support the Spanish Presidency's proposals.
EP. EP rapporteur on the draft directive, Jean-Paul Gauzès (EPP, France), told this newsletter that he understood that for a delegation as important as the UK, the Spanish Presidency wanted to strike a good compromise. He said the postponement would not change timing at the European Parliament. He gave the example of two other items of legislation, one on financial ratings agencies and one on payment services, on which he is the rapporteur and which the EP's Economic and Monetary Affairs Committee voted upon before the EU Council of Ministers reached agreement in principle on the matter. The Economic and Monetary Affairs Committee will vote on the draft directive on Tuesday 12 April 2010 and discussions over Gauzès' compromise amendments will continue on Wednesday 17 March (see EUROPE 10097).
The most controversial aspect of the draft legislation is how hedge funds and alternative funds from outside the EU shall be sold in the EU (wither managed by fund managers established in the EU or elsewhere). The United Kingdom wants City of London fund managers to be granted a 'European passport' for funds established in the Cayman Islands to enable them to sell the funds across the EU. Backed by most delegations, the Spanish Presidency wants to give EU Member States the option of allowing fund managers established in their country to sell their products as long as they meet transparency requirements and exchange of information deals are signed between the financial supervisor of the non-EU country where the fund is established and the financial supervisor of the Member State where the fund manager is established, but this would not allow a 'passport' to be issued. At the European Parliament, Gauzès has amended his initial proposal and how calls for European passports to be issued to non-EU funds managed in the EU for a transition period during which the European Commission would decide on whether the rules applicable in the non-EU country in question were equivalent to the rules applying in the fund manager's Member State. Transparency requirements would apply to fund managers and the non-EU country where the funds are registered would have to introduce systems to prevent money-laundering and sign tax agreements with the fund managers' country. The European Commission is still fighting its corner for its original proposal whereby this equivalence system could lead to a European passport being issued. Barnier said that any European passports would be highly demanding and have to be earned fair and square. He said the passports would have very high criteria and require genuine reciprocity. (M.B. trans fl)