SEC says US unable to meet EU equivalence criteria

Date: Monday, June 14, 2010
Author: Hedge Funds Review

The US is unlikely to be able to comply with the equivalence criteria proposed by the European Union (EU) parliament to enable the marketing of US hedge funds to European investors, senior regulators said.

There are differences in regulation that would mean the US would not be able to comply with current proposals in the alternative investment fund managers (AIFM) directive, according to the US Securities & Exchange Commission's (SEC) associate director for regulation of the division of investment management, Robert Plaze, and the UK Financial Services Authority's (FSA) director of retail policy and conduct risk, Dan Waters.

The FSA had been calling for equivalence using international standards such as those drawn up by the International Organisation of Securities Commissions (Iosco), Waters told a London conference organised by InvestoRegulation.

Waters said such standards would give a "better shot" at achieving equivalence than the EU parliament's proposals to allow funds to be marketed only if the country they were in met a range of criteria.

The regulatory concepts under discussion in the US, Plaze pointed out, centred around registration and disclosure. Unlike the EU, the US is not calling for capital requirements, remuneration policies or leverage limits for hedge fund managers.

According to Waters the "draconian" position of the European parliament was contrary to the assertion of parliamentary rapporteur Jean-Paul Gauzès that the directive would not create a European fortress.

Waters said the FSA preferred the European council's position, which proposes to maintain a form of private placement for non-EU funds.

Both Plaze and Waters said they supported the gathering of systemically important information. Plaze said the SEC and FSA had been working closely on the best way of collecting such data. A pilot group of SEC registrants would be asked for information this autumn, similar to that collected by the FSA in its regular hedge fund survey.