EU clinches deal on hedge funds supervision

The European Union clinched a deal on hedge funds supervision on Tuesday after representatives from the European Parliament, member states and the European Commission reached final agreement on the issue.

"Over a year in the making, this often-controversial law will impose registration, reporting and initial capital requirements on a financial industry sector which until now has been subject only to "light touch" regulation," the European Parliament said in a statement.

"Alternative investment funds (AIF), notably hedge funds and private equity, will henceforth be subject to more substantial regulatory oversight, so as to enhance investor protection and financial stability, both key priorities for Parliament all throughout the negotiations," the statement said.

The European Parliament broadly endorsed the agreement reached by EU finance ministers at their monthly meeting last week.

Under the agreement, the Paris-based European Securities and Markets Authority, a new EU financial supervision authority to be in work next year, would issue passports to non-EU hedge funds and allow them to operate in the whole EU.

The supervision of hedge funds outside the EU has been a bone of contention between the parliament and some member states.

While London, which hosts 80 percent of Europe's hedge fund industry, wanted to ensure that hedge funds based outside the EU but managed in the City of London would not be locked out of European markets, Paris stood for a strict control of allowing foreign funds to operate throughout the EU.

Besides agreement on the supervision of hedge funds outside the EU, the European Parliament also proposed to curb asset-stripping, a practice used by private equity funds to make quick profit after taking over a company.

The agreed text will now be put to a vote of approval at the parliament's plenary session on November 11th, which is mainly a formality.

After the directive enter into force, EU member states will have two years to translate the rules into their national laws.

[Source: Xinhua, Brussels, 26Oct10]

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