Spain Suggests ‘Cooperation Agreements’ For Hedge Fund Rules

Feb 17 2010 | 2:05am ET

Hedge funds based outside of the European Union would be at the mercy of their local regulators under a new proposal offered by Spain.

The amendment to the EU’s Alternative Investment Managers Directive would require “appropriate cooperation agreements” between individual state regulators within the EU and regulators of other countries before hedge and private equity funds from those countries could market their wares in a European country.

The move by Spain, holders of the rotating presidency of the EU, revives part of the original directive that it had earlier excluded. That backtracking is likely to provoke objections from the U.K., home to the overwhelming majority of the European alternative investments industry.

The new Spanish proposal would keep hedge fund managers in the U.S., Singapore, Hong Kong and other jurisdictions from having investors in the 27-member EU.

“We are concerned that the original text of the directive, which is protectionist in nature where it came to third countries, could be drifting back,” Andrew Baker, CEO of the Alternative Investment Management Association, told Reuters.

The directive is currently making its way through the European Parliament, and requires the approval of both that body and EU member nations before it takes effect. If it does, it could impose strict new reporting and custody requirements on European hedge and p.e. funds, as well as possible leverage limits.

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