Financial Regulatory Forum

– 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.

BRUSSELS, April 7 (Reuters) – The European Union (EU) is embarking on an overhaul of financial services that politicians hope will send bankers back to their roots of no-frills lending to households and business.

Michel Barnier is the EU commissioner in charge of the shake up on regulations ranging from curbs on banker pay to a clampdown on speculators betting on government debt.

Here is a guide to the overhaul:

* One of Barnier’s priorities is writing a rule book for trading derivatives, a financial instrument whose value is linked to an asset such as a government bond or currency.

By John O’Donnell

BRUSSELS, March 17 (Reuters) – The European Commission plans to propose controls on certain government debt derivatives as soon as June in an effort to crack down on speculation blamed for aggravating Greece’s borrowing problems.

Curbing speculation by hedge funds in credit default swaps, a form of debt insurance, is high on the EU’s political agenda as finance ministers consider a possible bailout of Greece, the euro zone’s most troubled economy.

On Wednesday, Michel Barnier, the European commissioner in charge of financial market regulation, said he would propose rules to control naked selling of credit default swaps — the sale of the insurance contracts to buyers who do not own the debt — as soon as June.

BRUSSELS, March 5 (Reuters) – The European Union’s executive body said a meeting on Friday with supervisors and investment industry officials has helped shape a planned law on derivatives due later in the year.

The meeting was held amid pressure from France, Germany and Luxembourg to crack down on what they see as hedge funds using credit default swaps to push Greek government bonds and the euro lower.

“It was a useful meeting and it will feed into preparation for rules on derivatives that we will propose in the Summer,” a spokeswoman for EU Internal Market Commissioner, Michel Barnier, said.

BRUSSELS, March 3 (Reuters) – Officials working for European Union financial markets chief Michel Barnier will meet industry experts and supervisors on Friday to discuss debt speculators amid concerns traders are worsening Greece’s borrowing problems.

The meeting comes as political leaders attack hedge funds for speculating on Greek debt — although such trading is legal, the EU is examining curbing it with new rules and has invited the experts to give their opinion.

“We are looking at this issue very closely,” Barnier’s spokeswoman, Chantal Hughes, said. “We have called in experts to discuss.”

By Huw Jones

LONDON, March 2 (Reuters) – Securities regulators in the European Union said on Tuesday they will start rolling out requirements for reporting net short positions in shares as part of wider efforts to improve transparency in markets.

Short selling of shares is a practice favoured by hedge funds and involves selling a stock that is not already owned, in the hope its value will fall by the time a purchase is required to settle the trade. The difference in price is pocketed as profit.

Interim short selling curbs were introduced by some EU states in late 2008 when bank shares came under pressure, but regulators want a single, bloc-wide regime to end confusion among investors.

Watching the banks

  BRUSSELS, Feb 16 (Reuters) – Banks in the European Union won’t face a ban on proprietary trading, the bloc’s executive body said on Tuesday, but warned the sector to check its ethics.

Securitised products and derivatives, two areas where banks have raked in revenues over the years, will also come under closer EU scrutiny, officials said.

U.S. President Barack Obama has proposed banning some banks from trading on their own account and limiting their size by forcing divestments of any hedge fund and private equity operation to make them less likely to need public bailouts.

By John O’Donnell

BRUSSELS, Jan 14 (Reuters) – One of the European Union’s top lawmakers has said she may demand a second hearing to quiz the bloc’s designated tax and economics chiefs before the committee she leads decides whether to approve their appointments.

The remarks by Sharon Bowles, who leads the influential economic and monetary affairs committee, cast uncertainty over the line-up of the next European Commission, in particular the would-be tax chief, who has already faced criticism.

“I would have liked more questioning time with him,” Bowles said of Algirdas Semeta, the Lithuanian candidate to take charge of EU taxation whose answers at a European Parliament hearing were described by socialists as unconvincing.

By John O’Donnell

BRUSSELS, Jan 13 (Reuters) – The European Union’s designated financial services chief has pledged to examine curbs on short-selling and extend a planned regulatory shake-up to every corner of the industry, blamed by many for the economic crisis.

Outlining his plans to push through a welter of rules that will tighten the policing of banks as well as curbing runaway borrowing, Michel Barnier said: “We need to turn the page on an era of irresponsibility.”

“We are going to reform. No market, no financial player … should be able to escape. I will not shy away from the difficult subjects of sanctions and short-selling.”

By Kevin Drawbaugh and Huw Jones

WASHINGTON/LONDON, Jan 6 (Reuters) – Global financial regulation has changed little since the 2008 banking crisis, but that won’t be the case much longer.

U.S. and EU authorities are expected to hammer out the definite shape of a new regulatory order in 2010 that will fundamentally change how world banks and markets operate.

Stricter limits on leverage and capital will emerge, leading eventually to slimmer profits for banks, policy analysts said. Formerly unregulated off-exchange derivatives markets will have to conform to new procedures.