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MEPs pledge to change hedge fund proposals

Date: Thursday, September 3, 2009
Author: Nikki Tait, Financial Times

European parliamentarians vowed yesterday to amend proposals to regulate hedge funds and private equity funds, because of fears the legislation could trigger an exodus to countries outside the EU such as Switzerland.

In the first committee debate on the highly charged issue in the European parliament, MEPs warned of the danger of approving "one-size-fits-all" legislation that failed to distinguish between different types of fund.

Under the proposed legislation drawn up by the European Commission this year, similar requirements would be imposed on most alternative investment funds, regardless of whether they were big hedge funds or relatively small commodity or real estate funds.

"The problem is the one-size-fits-all approach," said German MEP Wolf Klinz, from the Alliance of Liberals and Democrats for Europe.

His view was echoed by Scottish Labour MEP Catherine Stihler, who warned that some funds would be "innocently caught up" in the new regulation.

She cited, in particular, UK-style investment trusts, a large number of which are based in Scotland, which posed no systemic risks.

The tone of yesterday's hour-long "exchange of views" - in which MEPs repeatedly promised to tackle unwarranted details in the new rules - is likely to comfort both the fund managers and professional investors who have argued strenuously that the Commission's proposals were overly burdensome and poorly drafted.

The City of London has been lobbying heavily in Brussels and yesterday Boris Johnson, London's mayor, travelled to the European capital to pitch his views. He had talks with Jean-Paul Gauzes, the French MEP who has the job of steering the proposed regulations through parliament and plays a key role in crafting amendments, as well as Charlie McCreevy, EU internal market commissioner.

The directive "as it is currently drafted will have enormously damaging consequences for London, for the UK and Europe", Mr Johnson warned.

A spokesman for Mr McCreevy - who, for a long time last year, resisted pressure to impose stringent rules on the industry - said the commissioner was looking forward to seeing the mayor and discussing the issues.

Earlier, the key economic and monetary affairs committee had also held talks with US congressmen visiting Brussels. The proposed rules had "scared the bejesus out of the private equity and hedge fund industry in the US", Paul Kanjorski, a Democrat who heads the capital markets subcommittee, told European parliamentarians, although he added that dialogue might have overcome some misunderstandings.

Yesterday's exchanges are likely to be the start of a long, complex legislative process. Sharon Bowles, the British MEP who chairs the committee, suggested that the earliest the first report on the proposed rules could be ready was mid-October and the parliamentary process was likely to run well into 2010.

"We can't abbreviate the amount of time we spend on this," she said.