Britain Blasts European Union Alts. Rules Anew

Feb 9 2010 | 11:15am ET

British regulators have launched a new offensive against the European Union’s proposed hedge fund and private equity rules.

Both the Bank of England and Financial Services Authority issued new warnings about the potential impact of the Alternative Investment Fund Managers directive, as the European Parliament begins to sift through some 2,000 amendments to the legislation offered by members.

The Bank’s Financial Markets Law Committee blasted the EU rules in a new report, arguing that they will cause “systemic failure and widespread market disruption” if adopted.

The legislation as written would raise “an infinite number of legal uncertainly issues,” as the FMLC alleges that the term “hedge fund” is far from clearly defined. It also warned that “the inconsistencies and inherent conflicts between the Commission’s proposal and existing financial services directives” would “create legal uncertainty as to the general application of Community legislation.”

The FSA isn't pulling its punches either. At a conference at the French business school Edhec yesterday, the regulator’s asset management chief warned that the legislation “could go badly wrong.”

“I would not underestimate the significant risks that still exist in this draft,” Dan Waters said. The EU rules would impose strict new reporting and custody requirements on firms, as well as possible leverage limits, and could bar foreign firms from selling their products in the 27-member bloc.

“The parliamentary text is very far away from an acceptable position from the U.K.’s point of view,” Waters said. “We are not on safe ground yet.”


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