Negotiators from the European Parliament believe that they may be close to breaking a deadlock with the Council of Ministers over proposals to tighten the EU’s regulation of hedge funds. 

The proposals for EU-wide rules on management of ‘alternative investment funds’ has been the subject of intensive discussions between MEPs and the Council since May. The dossier is one of the proposals made by the European Commission to reform financial markets in the wake of the banking crisis.

Both the Council and the Parliament, while disagreeing on the content, have stressed the need for agreement to be reached at a single reading, so that the new rules are in place quickly and the EU can move on to debating other reforms.

The Parliament had hoped to vote on an agreed version of the text on 7 July, but abandoned the idea because it could not come to an agreement with the Council. The vote has been rescheduled for the Parliament’s plenary session on 20-23 September.

Monitoring activities

The legislation would impose reporting requirements on fund managers, to ensure that regulators and investors can monitor their activities. Managers that were found by regulators to be pursuing irresponsible investment strategies could be banned from operating in the EU’s single market. The legislation would also set minimum capital requirements for funds. It would cover a broad range of alternative investment funds, including hedge funds, private-equity firms, and commodity funds.

The Council and the Parliament have been struggling to reconcile their positions on the access that fund managers based outside the EU should get to the internal market.

The Parliament’s position, approved by its economic and monetary affairs committee in May, was that managers not based in the EU who meet the requirements set out in the legislation should be allowed to market their funds in all member states. Consequently, governments would have had to scrap their national private-placement schemes, which set out market-access rules for foreign funds and managers.

The majority of EU member states are, however, opposed to allowing non-EU fund managers to operate across the single market. They insist that national private-placement schemes should remain. The French government has been particularly adamant on this point.

French MEP Jean-Paul Gauzès, who is drafting the Parliament’s version of the proposal, told European Voice that a compromise was now “under discussion” that would allow member states to retain private-placement schemes while still ensuring fair access to the single market for non-EU fund managers.

He said that the compromise under discussion included strong “European rules” setting out how these national schemes should operate, so creating a reasonably level playing-field across the EU. He said that member states would, nevertheless, retain “room for manoeuvre” in how they regulated their markets.

“We are making progress,” Gauzès said. “I remain optimistic.”

The discussions between the Belgian government, which holds the rotating presidency of the Council of Ministers, and the Parliament are likely to be welcomed by the hedge-fund industry, which has argued for the retention of private-placement schemes on the grounds that they are a tried and tested method of getting market access.

Gauzès said that negotiation sessions would be held on 1 and 7 September with the aim of finalising an agreement on the legislation before the Parliament’s plenary vote.

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