EU hedge fund curbs delayed after the intervention of Gordon Brown

Date: Wednesday, March 17, 2010
Author: The Telegraph

The ECOFIN gathering of finance ministers from the 27 EU states had been due to debate the Alternative Investment Fund Managers (AIFM) directive but it was removed from discussion. Instead, it will now be tabled at next month's G20 Summit to stave off growing criticism that proposed new rules are protectionist and contravene G20 agreement.

The action followed a call by the Prime Minister on Monday night to his Spanish counterpart Jose Luis Rodriguez Zapatero, whose country holds the EU presidency, insisting Britain would not accept a compromise plan.

Treasury insiders, who hailed the decision as a victory for the UK, said they would work on negotiations with various countries over the coming weeks but that it was important to thrash out issues within the context of global regulation.

The AIFM directive – which seeks to regulate hedge funds and private equity across Europe – has been bitterly opposed by Britain which has seen it as an attack on the status of London as a financial centre where 70pc of funds are based.

However, despite Mr Brown's actions earning a postponement, Britain remains very isolated on the issue in Europe. Those lobbying for change within the UK Government admit they will almost certainly fail to win all the changes they want in the legislation and that proposals for tougher regulation and transparency, being championed by France and Germany, could yet be adopted.

However, Mr Brown's move is likely to have shifted the issue beyond the general election and avoided an embarrassing defeat for the Government at the hands of Europe.

Chancellor Alistair Darling, who lobbied his Spanish opposite number over the weekend, said Britain would seek more concessions because the current draft directive proposed by Spain threatened blocking international funds from the European market. The Chancellor believes that this outcome would be deeply damaging to the hedge fund and private equity industries as well as to returns made by pension funds.

Last week US Treasury Secretary Tim Geithner wrote to EU officials warning the directive was protectionist and would damage US funds. His letter angered Michel Barnier, EU commissioner for financial services, who said he was not amenable to pressure and would not take instructions "from Paris or London and certainly not from Washington."