Avalanche Of Amendments Inundate EU Hedge Fund Rules

Jan 28 2010 | 11:57am ET

No one said it would be easy: The European Union’s proposed alternative investments regulations have attracted a record number of proposed amendments from members of the European Parliament.

The 736 lawmakers are seeking more than 1,000 changes to the controversial rules, which, as written, would impose strict new reporting and custody requirements on European alternative investment firms, as well as possible leverage limits. The rules, which might also bar non-EU fund managers from collecting money in the 27-member bloc, have been decried by the industry as draconian. Many have warned it will drive hedge funds and private equity firms out of Europe entirely.

“We understand that well over a thousand amendments have been tabled by MEPs—this is unprecedented in EU financial services regulation, and shows clearly that there’s a long way to go to get the directive into an acceptable shape,” Javier Echarri of the European Venture Capital Association told The Telegraph.

Meanwhile, regulators in Britain, home to the overwhelming majority of European hedge fund firms, are sounding new warnings about the proposed regulation.

Dan Waters, who heads the Financial Services Authority’s asset management section, said the proposal’s equivalence requirements, which would bar funds whose home jurisdiction’s rules aren’t as strict as Europe’s, would bar a great many funds, indeed: 40% of the world’s hedge funds and 35% of its private equity firms.

“It would drive legitimate business models offshore,” Waters said. “It cannot be a sensible outcome from a directive that investor protection is delivered at the expense of the protection of financial stability.”

Poul Nyrup Rasmussen, the former Danish premier who has championed the EU legislation, called the report on which Waters’ claims were based biased.

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