Madrid, 18/05/2010 (Agence Europe) - Following the agreement in principle reached at the ECOFIN Council on Tuesday 18 May despite concerns expressed by countries like the United Kingdom, and the draft report on private equity funds, hedge funds and other “alternative funds” adopted by the European Parliament's economic and monetary affairs committee, the EU Council of Ministers and the European Parliament agree on the need for greater transparency in how hedge funds and “alternative investment” funds (speculative and private equity funds) operate, in line with the decisions taken recently by the G20. The Council of Ministers and the EP fall out, however, on how to deal with hedge funds and hedge fund managers from countries outside the EU, countries like the United States and islands in the Caribbean. Informal negotiations are under way between the two institutions to reach formal agreement on the new hedge fund directive before the summer break. It is too early to say what the institutions will decide on non-EU hedge funds. The EP is scheduled to vote in plenary in July on the new EU rules with a view to them coming into force in 2012.
The Spanish finance minister Elena Salgado commented that the Spanish Presidency now has a mandate to enter with the European Parliament but that at this stage, it was simply a matter of entering a new stage in the codecision procedure (in which the EU Council of Ministers and the EP are co-legislators). She said she had taken note of the UK's concerns. Backed by the Czech finance minister, the United Kingdom's new Chancellor of the Exchequer, George Obsborne, was shown that the UK is in a minority on this issue (although 80% of the hedge fund industry is based in the City of London). EU Internal Market Commissioner Michel Barnier said that the Council's compromise did not include his own preference for a rigorous and very strict European passport for hedge funds from outside the EU. He said fair rules had to be developed for market players abiding by identical, or similar, rules.
The Spanish Presidency's mandate is based on the draft compromise submitted to the member states' delegations in March (see EUROPE 10099), which rules out the option of a European passport for non-EU funds sold by managers based in the EU or elsewhere. According to the Council of Ministers, it should be the member states that decide whether or not to allow investment in non-EU funds managed by EU-based fund managers as long as the mangers respect certain measures to be set out in the new directive - transparency rules, for example. Non-EU fund managers may also be allowed to sell non-EU funds in the EU as long as they provide sufficient information to investors and the supervisory authorities in the country or countries in which the funds are to be sold and as long as there are exchange of information deals in place between the supervisory authority of the country in which the hedge fund manager is based and the country in which the funds are being sold.
The Gauzès report. On Monday evening in Strasbourg, the European Parliament's economic and monetary affairs committee adopted a draft report by Jean-Paul Gauzès (EPP, France) on hedge funds and alternative fund managers by a comfortable majority (31 to 11 with 3 abstentions), including all the compromise amendments tabled by the rapporteur (see EUROPE 10110). The vote reflects agreement between three major political parties at the European Parliament (the EPP, S&D and Greens/EFA). The Liberals and the Conservatives (CRE) voted against, seeing the draft Gauzès report as protectionist.
The MEPs suggest that a European passport should be granted to hedge funds from outside the EU that meet five criteria: - exchange of information agreements among supervisory authorities; proper standards to combat money laundering and terrorist financing in the country in question; good fiscal governance in the country in question; reciprocal access for EU funds to the market of the country in question; and recognition and respect by the country in question of rulings issued by the EU on “alterative funds” management based on the 1958 New York Convention on mutual recognition of legal rulings. Non-EU fund managers wanting to sell non-EU funds (funds not registered in the EU) will have to voluntarily pledge to respect the EU directive and register with the future European Financial Markets Authority, which will delegate its powers of scrutiny to the supervisory authorities in the non-EU country where the fund is registered.
This means that European hedge funds will no longer be able to work in the shadows and speculate against Greece or against the euro with impunity, said Pascal Canfin (Greens/EFA, France) in a press release. He said the Council of Ministers' ideas about the draft directive amount to cloud cuckoo land regulation because it would still allow London-based fund managers to sell funds registered in the Cayman Islands, hence providing European institutional investors access to such funds through the investors' British subsidiaries. Taking the opposite view and slamming highly protectionist draft legislation that would make it very difficult for Europeans to invest in non-EU funds, Syed Kamall (ECR, UK) said that the draft legislation, in the form in which it has been adopted by the EP committee, would slash the value of pension funds and make it practically impossible to invest in development funds for the world's poorest countries. (M.B./transl.fl)