BREAKINGVIEWS – Compromise in sight on EU hedge funds directive

April 14, 2010

— The author is a Reuters Breakingviews columnist. The opinions expressed are his own —

By Pierre Briançon

PARIS, April 14 (Reuters Breakingviews) – When does regulation become protectionism? This is what European Commissioner Michel Barnier has to decide as he attempts to broker a compromise between the UK and French governments on the EU’s proposal to regulate hedge funds and other alternative investment vehicles.

A deal is in sight on the last remaining bone of contention of the controversial directive: the creation of a “passport” that foreign fund managers would need to peddle their goods within the EU.

The requirement to force non-EU managers to submit to the same rules as EU-based ones prompted strong objections from both the UK — home to most of Europe’s hedge funds — and the United States, which complained about the directive’s “protectionism”.

But advocates of a stringent passport argue that, just as Chinese toys have to submit to EU safety rules, it should be possible to subject foreign-based funds to European regulation without crying protectionism.

A first proposed compromise would have made it possible for offshore funds to market to EU investors, provided their managers could show they are subject to “equivalent” rules at home. But the French objected, saying this equivalence would be too tough and burdensome to establish. Barnier, the French commissioner who recently took over the internal markets portfolio, is now trying to convince the French to back down.

Another Frenchman, European MP Jean-Paul Gauzes, is also working on bridging the gap. He’s suggested a three-tier system for non-EU fund managers, from full passport authorisation to an outright ban.

The Parliament will vote on a text at the end of April, but European leaders also have to give their stamp of approval. They delayed any decision until after the UK election — which means they won’t be able to clinch a deal before June at the earliest.

The optimistic view in Brussels is that a final compromise can be reached by summer. A powerful incentive for the advocates of regulation to compromise is that if they don’t, hedge funds will remain as they are now — unregulated, and happy to be.


— Jean-Paul Gauzes, the European MP, has suggested a compromise to overcome differences between the UK and France on the idea of a EU-wide “passport” that would allow funds from outside the European Union to solicit European investors.

— Gauzes, who is in charge of the report on the alternative investment funds directive, has suggested a three-tier system for offshore funds, according to the type of regulation they are submitted to in their home country.

— The European Parliament is schedule to vote on April 27 on the text, which is yet to be approved by the EU’s political leaders.

(Editing by Peter Thal Larsen and David Evans)


No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see