France pushing tougher financial regulation
By Anna Willard
PARIS, July 2 (Reuters) – France said on Thursday it will not allow draft EU rules to regulate hedge funds to pass unless they are toughened, putting it at odds with Britain which has been trying to dilute them.
France has been an advocate in Europe for stronger financial sector regulation and the speech by Economy Minister Christine Lagarde was intended to spell out the details of reform she hopes will happen in the months ahead.
“The (European) Commission’s project (on hedge funds) is a step forward, but it is not up to my ambitions,” Lagarde, who has been leading a drive to toughen up financial sector regulation, said in a speech to a conference.
“I will not let this directive be adopted in this state.”
She said hedge funds located in non-cooperative tax centres should not be allowed to operate in Europe. Britain and the hedge fund industry say the draft rules make it difficult for non-European Union managers and funds to operate in the EU.
Lagarde also proposed a new EU directive to harmonise clearing house rules.
“For our financial stability, I want credit derivatives (denominated) in euro to be cleared by clearing houses located and supervised in the euro zone and that they are able to access European Central Bank liquidity,” she said.
Britain, which is not a member of the euro zone, is the EU’s biggest centre for trading off-exchange derivatives and dealers warn the market could be fragmented by many clearers.
The G20 countries agreed this year that clearing is key to making the huge derivatives sector less risky and more transparent.
Companies that chose to use clearing houses should be rewarded with a “bonus” of lower capital requirement rules, she said.
Lagarde also favours the creation of a euro zone data warehouse that would store copies of credit default swap contracts, in an effort to make the market safer.
In the United States, the DTCC already operates a warehouse which keeps “gold copies” in digital form of credit default swap contracts.
Lagarde urged the G20 group of industrialised and emerging market countries to make reforming accounting standards a priority.
“Fair value is not always market value. I would like a revision of the field of application of market value,” she said.
“I would like the valuation methods to be revised to take into account the length of time the assets are held.”
She also called for a reform of the governance of the International Accounting Standards Board so that countries using the standard setter’s International Financial Reporting Standards (IFRS) have more say at the body.
She urged the United States to quickly adopt Basel II bank capital rules but said while these had many strengths, they were not perfect.
“I am favourable to a rapid adoption of dynamic provisioning which is the best response to pro-cyclicality,” she said, referring to the idea that accounting rules exacerbate financial problems during bad times and inflate outlooks in good times.
Reforming financial rules was essential to ensure a sustained economic recovery, Lagarde said.
“Some people are already saying that the old habits are hastily coming back. That foreign banks are already promising extravagant fixed remuneration to rebuild teams and continue tomorrow as they did yesterday,” she said.
“I tell you: that would be a new collective madness; we should oppose it.”
(Additional reporting by Huw Jones; Editing by Ruth Pitchford)