The EU's anti-hedge fund proposal is probably illegal

Date: Friday, August 20, 2010
Author: Daniel Hannan,

All right, here’s one last go. For the past year, I’ve been banging on about the sheer awfulness of the EU’s Alternative Investment Fund Managers Directive: a scheme to regulate, not just hedge funds, but all private equity. Since most such funds are based in London, the Directive will disproportionately damage the United Kingdom.

I’ve been touring City boardrooms in an attempt to drum up opposition to the measure and have been struck, more than once, by the aptness of Ayn Rand’s description of company directors in Atlas Shrugged: “Men who, through the decades of their careers, had relied for their security on keeping their faces blank, their words inconclusive and their clothes impeccable”.

The problem is not that our financiers are unaware of the measure; it’s that they don’t see any prospect of stopping it. Most of the other member states support the AIFM Directive, whether from envy, dislike of capitalism or anti-Britishness. If it’s coming anyway, say our financial Masters of the Universe, why waste time attacking it?

Well, here’s a reason: it may be illicit. The European Commission maintains that the legal basis of the Directive is Article 47(2) of the Nice Treaty. The Nice Treaty has since been supplanted by the Lisbon Treaty, and Article 47 has become Article 53(1). It reads as follows:

In order to make it easier for persons to take up and pursue activities as self-employed persons, the European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, issues directives for the mutual recognition of diplomas, certificates and other evidence of formal qualifications and for the co-ordination of the provisions laid down by law, regulation or administrative action in Member States concerning the taking up and pursuit of activities as self-employed persons.

What? What? The basis of this wretched directive, which will disable one of the few parts of our economy with the locomotive power to drag us back to growth, is a clause providing for the mutual recognition of qualifications among the self-employed?

Come on, any hedgies reading this: don’t sit around waiting for Commissioner Barnier to exile you to Singapore or Geneva. For a tiny fraction of the cost of complying with the Directive, you could fund a court challenge.