Hedge fund talks derail again as France and Britain clash

Date: Friday, October 15, 2010
Author: Helia Ebrahimi, Telegraph

Europe's new laws on hedge fund regulation have stalled again as diplomats and politicians failed to reach an agreement on controls ahead of next week's meeting of European finance ministers.

Hedge fund talks derail again as France and Britain clash Photo: Corbis

The row revolves around whether or not to grant a "passport" licence to foreign funds that want to work across the European Union's 27 member nations.

France wants more stringent rules for foreign hedge fund managers, while the UK – where 80pc of European hedge funds are based – is keen to allow them the same rights as their domestic counterparts.

In a statement Jean-Paul Gauzès, parliamentary rapporteur for the legislation, said the postponement was due to "the absence of an agreement" by the permanent representatives committee. As a result, the European Parliament has put off a planned vote on the draft until November, with no further three-way talks scheduled with the European Council and Commission until member states have coalesced.

Christine Lagarde, the French finance minister, and Chancellor George Osborne are expected to talk in the coming days in a final attempt to reach an agreement on controls for hedge funds and private equity firms before a gathering of finance ministers early next week.

The Belgian presidency of the council this week released yet another compromise draft of the directive, further refining its previous proposals for a passport to market non-EU funds to EU investors.

The UK – along with Sweden, the Netherlands and the Czech Republic – is reluctant to sign up to this latest draft.

Belgium also proposed giving new powers to the European Securities and Markets Authority, a new EU watchdog, which Paris wants to take over the running of the passport scheme which France opposes.

The controversial legislation has caused rifts since it was first proposed in April 2009. It has also antagonised Washington, which believes the French plans are protectionist. US Treasury Secretary Timothy Geithner has written to Ms Lagarde warning her against trying to control the operations of foreign hedge funds.