France, U.K. Near Hedge Fund Passport Deal

Oct 11 2010 | 2:13pm ET

At long last, a deal may finally be falling into place on the European Union’s controversial proposed hedge fund and private equity regulations.

The French, who upended the process last week by announcing their opposition to any rules that granted foreign hedge funds the right to operate across the EU’s 27 countries, have now indicated that it would be willing to accept such a “passport.” In exchange, France is asking the U.K. to accept greater powers for the new pan-EU financial watchdog—including the power to issue the passport.

“There are real signs of both sides coming closer together,” one EU diplomat told Reuters. “I believe that, in any case, there will be cooperation and the final solutions will be positive for both sides,” Carlos Tavares, head of the Committee of European Securities Regulators, added.

Of course, a deal is not yet done—and it was thought that one was near before France stepped in, with German support. But it is likely that the eventual compromise will at the very least delay the introduction of the passport.

France’s change of heart comes in the wake of an angry letter from U.S. Treasury Secretary Timothy Geithner to his French counterpart, Christine Lagarde, and three other EU finance ministers. While France denied Geither’s charges of protectionism, the country is reportedly sensitive to criticism from the U.S. in advance of its becoming president of the Group of 20. And the U.S. response is thought to have spooked Germany, whose support was crucial for France in the passport debate.


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