Hedge fund curbs endorsed by Parliament
(BRUSSELS) - The European Parliament on Thursday endorsed wide-ranging curbs on the trillion-dollar hedge fund industry, blamed in part for fanning the global financial crisis.
Meeting in plenary session, the parliament adopted the legislation by a large majority, with 513 votes in favour, 92 against and three abstentions.
The just-adopted European Union rules for hedge funds and private equity are "a new step taken in the reform of the financial system," said conservative French MEP and rapporteur Jean-Paul Gauzes.
They "will bring more light to the black hole of finance," said Luxembourg Socialist MEP Robert Goebbels.
"We must now build on these foundations by introducing strong and intelligent regulation for all financial markets, products and actors," the EU's financial services commissioner Michel Barnier said.
The directive, to come into force in 2013, imposes strict registration, reporting and initial capital requirements on hedge funds which have been accused of encouraging ill-judged speculative investments at the heart of the global financial crisis.
The hedge fund industry was estimated to be worth 1.2-1.3 trillion dollars last year, accounting for up to half of all market activity on some days.
Thursday's legislation is part of a range of EU measures to tighten financial supervision from next year, including stepped up oversight of the credit ratings agencies which have also been blamed for the global meltdown.
Under the rules, a fund approved by one country to have adopted rules of good conduct, such as transparency and risk management, will be free to offer its products across the EU, effectively acquiring 'passports' for their business.
The rules come into effect progressively. Between 2013 and 2015, a London-based fund would be able to sell across Europe but "third-country" funds -- such as American or Cayman Islands-based products -- would not. From 2015, the market will include funds from outside Europe.
The new rules apply not only to speculative funds but also to so-called "alternative" funds, such as capital-risk and private-equity.
The parliament pushed through added chapters to the original proposals, notably adding measures to combat asset stripping by private equity funds.
There was heated debate over the curbs between warring EU institutions after Britain and France, the principal protagonists in the issue, clashed on who would control the process of regulatory approval, especially on the 'passport' approval.
Eighty percent of the hedge fund industry is located in the City of London, which explains the mammoth fight put up by Britain.
The legislation will be closely monitored by the United States government.
US Treasury Secretary Timothy Geithner has expressed fears of protectionist overtones in the French-led bid to have the industry regulated by an incoming European Securities and Markets Authority which begins its work in Paris from January 2011.
Further information, European Parliament:
Adopted text will be available here (click on 11 November)
Background note on the alternative investment fund managers directive