France Drops Opposition To ‘Passport’

Oct 7 2010 | 1:07pm ET

France indicated yesterday that it was prepared to accept allowing European Union-wide access to foreign hedge funds, which could lead to a final deal on the bloc’s controversial hedge fund rules.

French diplomats dropped their outright opposition to the so-called “passport” for non-EU funds, which would give those hedge funds and private equity funds that meet stringent new EU standards access to all 27 member countries’ markets, a change from the current system where individual national regulators make the decision.

Last week, France, backed by Germany, announced it would not accept any passport for foreign hedge fund managers, appearing to sink a carefully-crafted compromise. Now, the French say they might accept such a provision, but only if the new European Securities and Markets Authority has the sole authority to issue the passport.

The passport proposal is backed by both the European Commission and European Parliament, as well as the U.K., home to the bulk of Europe’s alternative investments industry, and the U.S. On Tuesday, U.S. Treasury Secretary Timothy Geithner urged France to back the directive, calling its opposition to the passport for foreign hedge funds “discriminatory.”

France has denied that charge, saying it is only concern about “ensuring maximum protection for investors.”

France’s openness to accepting a passport does not ensure a deal, however. The French are willing to allow the current system of national regulators to remain in place until as late as 2016. Others, including the U.K., may want the current system to remain in place alongside the passport system, allowing individual countries to approve funds that fail the EU test.

“This is progress but not yet a breakthrough,” one diplomat told the Financial Times.

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