22nd May 2022

UK forced to swallow bitter pill on hedge funds

  • London is home to 80 percent of the EU's hedge funds (Photo: harshilshah100)

EU finance ministers have agreed a common position on draft EU legislation on managers of hedge funds and other alternative investment firms, opening the door for negotiations with the European Parliament, the co-legislator.

The agreement on Tuesday (18 May) comes despite UK concerns that the Europe-wide law could negatively impact the British economy, with 80 percent of hedge funds currently located in London.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Lightly regulated hedge funds handled roughly $1.2 trillion (€970 bn) worldwide in 2009, and have been blamed by some European politicians, including the leaders of France and Germany, for exacerbating the effects of the financial crisis, despite the lack of market data in this area.

Supporters of the EU bill say this danger would be reduced under the proposed requirements for greater transparency, which include forcing fund managers to register and comply with reporting requirements, coupled with curbs on risk-taking and pay awards.

Britain is concerned that the rules for non-EU domiciled funds could prove to be particularly onerous, with a majority of the country's firms currently located in the Cayman Islands for tax reasons.

The country's new finance minister, George Osborne, was forced to stomach the majority position of EU states on Tuesday however, despite support from the Czech Republic.

UK treasury officials have sought some solace in language in the meeting's conclusions saying discussions with the parliament will now get underway, "taking into account the concerns expressed by member states."

"Given where we are this means the UK concerns are still in play," said one official who wished to remain anonymous. "We have to go into the trialogue discussions now with the parliament and the European Commission."

Parliament's position

The finance ministers' decision comes less than a day after members of the European Parliament's economy committee voted on the same draft EU law on alternative investment funds, which was originally put forward by the commission last year.

The euro deputies called for new ways to deal with managers and funds located outside the EU, a proportionality system to regulate less risky funds more lightly, and rules on remuneration policies and short selling.

"This position will ensure better transparency and better investor protection while at the same time being on the side of the financial industry when it is working for the real economy," said centre-right MEP Jean-Paul Gauzes, the parliament's rapporteur on the subject.

While EU member states say third country funds should get individual approval in each member state in order to market their products there, parliament supports a system under which the external funds would voluntarily agree to the new directive's terms.

In addition they would have to comply with a number of extra standards such as measures to prevent money laundering, under Mr Gauzes' proposals.

EU internal market and financial services commissioner Michel Barnier gave an indication of the work to be done in reconciling the two sides after Tuesday's meeting. "On the third countries issue I am closer to the parliament's position," he said. "There are going to be substantial discussions."

Parliament has indicated it would like the full plenary of MEPs to vote on the draft legislation this July, although analysts say this is an ambitious deadline given the current divergences.

Commission grilled on RePowerEU €210bn pricetag

EU leaders unveiled a €210bn strategy aiming to cut Russian gas out of the European energy equation before 2027 and by two-thirds before the end of the year — but questions remain on how it is to be financed.

MEPs raise ambition on EU carbon market reform

MEPs on the environment committee agreed on reform of the European carbon market — including expanding it to buildings and transport. They also want to extend the scope of the carbon border tax, and phase out free permits by 2030.

EU countries rush to expand gas import capacity

EU plans to quit Russian gas and replace it, in part, by importing overseas liquified natural gas has lead to a flurry of new gas projects — which threaten to lock in unnecessary gas use for decades.

Russia's war stifles EU pandemic recovery

The impact of Russia's war in Ukraine is being felt throughout the EU and the eurozone. The European Commission has downgraded its economic forecast to 2.7-percent growth this year.

Revealed: Big Oil shaped EU's gas-cutting strategy

Internal documents found EU Commission president Ursula von der Leyen and energy commissioner Kadri Simson coordinated their Russian gas cutting strategy with oil CEOs to determine which measures were "feasible".

Commission grilled on RePowerEU €210bn pricetag

EU leaders unveiled a €210bn strategy aiming to cut Russian gas out of the European energy equation before 2027 and by two-thirds before the end of the year — but questions remain on how it is to be financed.

News in Brief

  1. UK to send 'hundreds' of migrants to Rwanda each year
  2. Norwegian knife attacks were domestic dispute
  3. Sweden hits back at Turkey's 'disinformation' in Nato bid
  4. Germany's Schröder gives up one of two Russia jobs
  5. G7 countries pledge €18bn in financial aid for Ukraine
  6. Italian unions strike in protest over military aid for Ukraine
  7. Russia cuts gas supply to Finland
  8. Half of Gazprom's clients have opened rouble accounts

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic delegation visits Nordic Bridges in Canada
  2. Nordic Council of MinistersClear to proceed - green shipping corridors in the Nordic Region
  3. Nordic Council of MinistersNordic ministers agree on international climate commitments
  4. UNESDA - SOFT DRINKS EUROPEEfficient waste collection schemes, closed-loop recycling and access to recycled content are crucial to transition to a circular economy in Europe
  5. UiPathNo digital future for the EU without Intelligent Automation? Online briefing Link

Latest News

  1. What Europe still needs to do to save its bees
  2. Remembering Falcone: How Italy almost became a narco-state
  3. Economic worries and Hungary on the spot Next WEEK
  4. MEPs urge sanctioning the likes of ex-chancellor Schröder
  5. MEPs call for a more forceful EU response to Kremlin gas cut
  6. Catalan leader slams Pegasus use: 'Perhaps I'm still spied on'
  7. More EU teams needed to prosecute Ukraine war crimes
  8. French EU presidency struggling on asylum reforms

Join EUobserver

Support quality EU news

Join us