EU wraps up final deal to curb hedge funds

EU wraps up final deal to curb hedge funds

Brussels: The European Union wrapped up a final deal on Tuesday to apply strict new legislative curbs on the trillion-dollar hedge fund industry.

“Even if the text is not perfect, it’s a good start," said Jean-Paul Gauzes, the EU parliament rapporteur on the bill after successful negotiations between the European Parliament, EU states and the European Commission.

“It’s a real first step towards real European supervision," added Belgian finance minister Didier Reynders.

Agreement was finally reached between warring EU institutions after Britain and France, the principal protagonists in the issue, last week settled a two-year-old conflict centred on who would control the issue of future Europe-wide “passports" allowing funds to market their wares.

EU financial services commissioner Michel Barnier has said repeatedly that the deal would result in a “passport based on merit" and “not a passport tucked away in a hidden pocket."

The deal still requires a full parliamentary vote, set for next month, but that should be a formality.

EU partners were desperate to settle their position on hedge funds and other alternative investments before next month’s summit of Group of 20 major and emerging economies in South Korea.

The content of the legislation will be closely monitored by the United States government.

During tough negotiations, US Treasury Secretary Timothy Geithner had expressed fears of protectionist overtones in the French-led bid to have the industry regulated by an incoming European Securities and Markets Authority which takes up work in Paris from January 2011.

Eighty percent of the hedge fund industry is located in the City of London, which explains the mammoth fight put up by Britain.

Under the agreement struck between states last week, a series of different phases will see rules change depending on funds’ origins.

Once the planned change is implemented, at the start of 2013, funds will have to comply to strictly defined new guidelines, an expert involved in the negotiations explained.

Between 2013 and 2015, a London-based fund would be able to sell across Europe, although “third-country" funds - such as American or Cayman Islands-based products - would not.

France originally wanted the industry - blamed for exacerbating the financial crisis owing to high-stakes gambles that backfired - to be brought under the EU’s emerging financial services supervisory framework sooner.