Lawmakers Say UK Won’t Delay AIFM Rules Long
According to a Bloomberg report, the temporary reprieve granted to the UK by European Union finance ministers decision last week to postpone talk of the final wording of the Alternative Investment Fund Managers Directive, which would force funds based outside the E.U. to comply with restrictions on bonuses and leverage if they want to market themselves to investors within 27-nation bloc, won’t last for very long. Despite warnings by Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling that passing the AIFM in its current state would potentially harm the City of London’s preeminence in financial services, as it is home to over 70 percent of Europe’s hedge funds and about 60 percent of its private equity funds, Jean-Paul Gauzes, a French member of the assembly in Brussels, said that will not alter the European Parliament’s timetable.
“With a general election coming soon, the British prime minister might not want a decision like this to be taken in Ecofin,” said Gauzes, in the Bloomberg report, referring to the meetings of EU finance ministers. The U.K. must hold a general election by June 3.
U.S. Secretary of the Treasury Timothy Geithner has warned against placing limits on access to European markets, going so far as to suggest retaliation with similar discriminatory measures.
Spain, which chairs EU meetings until the end of June, in addition to the European Parliament have both said that there is more work to be done on the legislation. Poul Nyrup Rasmussen, Denmark’s former prime minister and an architect of the proposed rules, was quoted in the Bloomberg report as saying, “We can make an agreement with the U.S. government — the door is open to a compromise.” He went on to suggest that U.S. managers could continue to have access to European investors if the U.S. government adopts rules similar to the EU proposals within “two or three years.”
However, getting the U.S. to go along with those rules would be difficult at best, given the restrictions on bonuses and leverage. Antonio Borges, head of the Hedge Fund Standards Board, a London-based hedge fund self-regulatory organization, called the proposals the “first shot” in a trade war between the U.S. and Europe and asked, “Do you honestly see the U.S. Congress accepting blackmail from Brussels?”
Meanwhile, German Chancellor Angela Merkel has been speaking out against Brown as she seeks greater financial regulation, spurred by investors betting that Greece will default rather than rein in it’s tremendous budget deficit. She was quoted as saying,
I work well with Mr. Brown, but his one-time tax on bonuses was only half as sensible as it would be if Great Britain agreed to hedge-fund regulation, as we’ve been negotiating. That’s what we need to fight for and we expect support.
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