Brussels, 07/10/2010 (Agence Europe) - Commenting to this newsletter on Thursday 7 October, the European Parliament rapporteur on the draft EU directive on hedge funds, Jean-Paul Gauzès (EPP, France), said that they were the closest they had ever been to reaching agreement. During a meeting the day before of European ambassadors to the EU, the French delegation informed colleagues that it was prepared to adjust its position, which to date has been hostile to the idea of giving an EU passport to non-EU hedge funds and other funds so that they can be sold in the EU. Changing tack, France is now recommending a decidedly European system for the active marketing of non-EU funds, saying that the granting of a passport should be dependent on the new European Securities Market Authority (ESMA - part of the new package of financial supervision legislation) being given genuine powers to monitor and award passports. ESMA, rather than national supervisors, should in France's view be given the power to sign deals with the competent authorities of non-EU countries where the funds are based. France says the granting of an EU passport should be accompanied by a phasing out over a transition period that should end by 2018 of national investment systems. This would give ESMA time to gather further resources to properly carry out its work.
France justifies this change of direction towards an EU scheme by the fact that France always said it did not want an EU passport because the national authorities have neither the resources nor the desire to ensure respect of EU rules by non-EU funds, and that is why France wanted private investment systems. Now, however, if there is to be a passport, then it must be a truly European passport system. France says the passport can exist if ESMA issues and monitors it. Otherwise, there is the danger of countries picking and choosing the most advantageous legal system and this could create an uneven playing field. A strong ESMA is the best guarantee of consumer protection in France's view. It remains to be seen how the United Kingdom, where 80% of the EU's hedge funds are based and which has always called for an EU passport for foreign hedge funds, will react to the idea of the European supervisory authority, ESMA, being given genuine powers at the expense of the British authorities.
In a draft compromise unveiled by the Belgian Presidency on 4 October, ESMA would publish an opinion in January 2014 on how the EU passport for EU-registered funds and the private, national investment systems still in place would operate. It would publish an opinion on extending the EU passport to non-EU funds. Based on this opinion, the European Commission could decide in a delegated act on the EU passport being authorised for non-EU funds. In a qualified majority vote, the Council of Ministers and the EP (on a majority vote) would have the possibility of vetoing this decision. Private investment systems would continue to exist. In January 2018, the Commission could decide to end the national systems when it carried out an assessment of how the EU legislation is being implemented. Any such decision would be subject to the codecision procedure.
The change in the French position is likely to suit the European Parliament. Jean-Paul Gauzès commented: “The negotiations on a European passport for third countries are well underway and going in the direction envisaged by a large majority in the European Parliament. The conditions for granting the passport to non-European actors and funds and the control of its use must be defined and undertaken at European level, notably through the attribution of real powers to ESMA, the new European supervisory authority.” The negotiator for the Greens Group, French MEP Pascal Canfin, sets three conditions: -the EU passport must be issued by ESMA, which has to have proper powers of scrutiny to ensure EU legislation is being respected by funds registered outside the EU; - the introduction of the passport should lead in time to the scrapping of national, private investment systems; and - passive sales should be subject to basic rules to avoid any “gaping holes” in the legislation. On the latter issue and the option of professional European investors making use of non-EU funds, Canfin says that the Council of Ministers is starting to budge, despite the fact that the political agreement reached by member states in May does not include any measures in this connection (see EUROPE 10141). “Investors who invest in non-European funds must use the necessary diligence to ensure that these funds are not managed according to rules that are not compatible with the underlying principles in EU law,” added Gauzès.
The Belgian Presidency is pulling the stops out to try and get final agreement in principle later this month. New inter-institutional negotiations are planned after the weekend. The issue may be examined at the ECOFIN Council meeting on 19 October. (M.B./transl.fl)