US treasury chief warns EU on hedge fund rules

Date: Thursday, April 8, 2010
Author: Associated Press

U.S. Treasury Chief Tim Geithner has warned Britain, France, Germany and Spain about possible new European Union rules that he fears could prevent American hedge funds from selling to European customers.

In a letter to the four finance ministers, Geithner said he understood that a draft EU law currently under discussion "would discriminate against third country funds and fund managers by denying them the opportunity to access the EU single market."

Geithner wants a fund that receives authorization to do business in one EU country to automatically get the same rights to sell investments across the 27-nation bloc.

Britain is also in favor of this "EU passport" for foreign funds but France is firmly opposed, with officials saying they do not want to throw open Europe's doors to funds based in regions without tight oversight, such as the Cayman Islands.

This is Geithner's second attempt to sway European officials. He irked the EU's financial services commissioner Michel Barnier with a similar letter. Barnier told reporters that he was "not amenable to pressure" and did not take orders from Washington.

EU governments abandoned an attempt to strike a deal on the hedge fund rules last month and will seek to broker an agreement in May or June.

Officials said Britain is "very isolated" in fighting against stricter rules. More than 70 percent of alternative investment funds — which also include private equity funds — are based in Britain.

The European Parliament must also vote on the deal, with a first committee vote on April 27 followed by the final word from the full assembly.

EU regulators want fund managers to register in Europe and supply more information on their trades and risk exposure to prove they don't pose a threat to the financial system.

They would have to disclose their overall trading strategy, their risk management system and explain how they value and store assets — and be obliged to hold a minimum level of capital to cover potential losses.

The European Venture Capital Association, which represents private equity funds, said Geithner's letter "rightly highlights international concern" over the new rules.

"We all want to see regulation that is fair and does not discriminate unreasonably between fund managers from different jurisdictions," said EVCA's Javier Echarri.