UK's FSA steps into EU hedge fund spat with study

Date: Monday, August 24, 2009
Author: Huw Jones, Reuters

Britain's Financial Services Authority has commissioned a cost study of a draft European Union law on the regulation of alternative investment managers, a step hedge funds hope will provide more ammunition to dilute the measure.

"We have commissioned some external research through CRA International," an FSA spokesman said.

"It's trying to quantify the impact, the implications for markets and investors, the potential costs and benefits. It should be completed later this year," the spokesman added.

The EU's executive arm, the European Commission, proposed the Alternative Investment Fund Managers directive earlier this year, accompanied by its own impact assessment that concluded a new law was needed.

The draft law introduces mandatory registration of alternative fund managers in the EU for the first time, requiring them to provide data to regulators so they can spot the build up of excessive risks, a lesson learned from the financial crisis.

The hedge fund industry says it is protectionist by posing significant obstacles in the way of non-EU funds who will face a loss of business in the EU.

The measure needs approval from the European Parliament and EU states to become law, a process that will gather speed from September with key votes due in coming months.

The move by the FSA will be seen as another step in Britain's efforts to tone down parts of the draft law, fearing it will damage the sector's global competitiveness. About 80 percent of hedge fund assets in the EU are managed out of London.

France, however, has said it needs toughening up, setting the scene for a power struggle over coming weeks which finance industry officials expect to spill over into the G20, which meets next month to thrash out common approaches to new financial regulation.

The Alternative Investment Management Association (AIMA), a global hedge fund lobby, welcomed the move by the FSA and urged Brussels to full cost benefit analysis.

"If would be extraordinary if there were no proper assessment at a European level of the impact of a directive that could have extremely wide-ranging consequences," AIMA chief executive, Andrew Baker said in a statement.

AIMA said the study would look at European competitiveness not just the impact on Britain alone.

The Commission published a 123-page impact assessment to accompany its draft law but it mainly looked at whether existing national and EU rules can monitor risks in the alternative investment sector properly.