Legislation that would crack down on hedge funds and private equity groups has led to talks between EU governments and the European Parliament, and a souring of relations between the EU and the U.S., with the U.S. saying the legislation would make it harder for their fund managers to do business in the EU.
(Reuters) – European Union governments and the European Parliament are locked in talks to end a logjam over legislation aimed at cracking down on hedge funds and private equity groups.
The draft measure has irked the United States, which says it would discriminate against U.S. fund managers who want to do business with EU investors.
The new rules are part of a slew of regulatory measures that implement pledges the EU made at the global Group of 20 leading countries level to introduce reforms by the end of 2012.
The United States this summer approved a reform of Wall Street that turned the G20 pledges into law in one fell swoop.
Here is a guide to the overhaul being authored by the bloc’s executive European Commission and approved by EU states and the European Parliament:
HEDGE FUNDS/PRIVATE EQUITY
The Commission has proposed a draft law to regulate managers of hedge funds, private equity groups and other alternative investments to curb risks and excessive pay. It requires registration and regular disclosure of information.
Talks between EU states and the parliament have been bogged down for months over a passport scheme or licence for foreign hedge funds to do business throughout Europe. France wants tight curbs while Britain wants to maintain freedom to give foreign funds a licence in the UK. There is also disagreement over the extent to which private equity groups should disclose strategy.
The European Commission proposed a draft law in September to force more transparency in the $615 trillion off-exchange derivatives market. Traders will have to standardise and centrally clear as many of their contracts as possible and record all trades.
The EU has approved the creation of three new EU authorities with binding powers to supervise banks, insurers and markets from January. A fourth to monitor system-wide risks will be based at the European Central Bank in Frankfurt.
BANK TRADING AND BONUSES
The EU is finalising new rules that will give supervisors tough new powers to curb excessive pay at banks and other financial institutions to limit risk-taking.
The rules will also increase how much capital banks must set aside to cover resecuritised products they hold on their books.
The Commission will propose another round of amendments to EU bank capital rules in December or early 2011 to implement the “Basel III” bank capital and liquidity reforms agreed in September at the global level.
The European Commission has proposed controls for short selling of shares and naked selling of credit default swaps in government debt — a form of insurance. The draft law also includes powers to ban short selling for temporary periods.
Policymakers say they want to rein in financial speculators whom they blame for worsening the debt situation of countries like Greece.
CREDIT RATING AGENCIES
The Commission has proposed changes to new EU rules to regulate credit rating agencies that are now coming into effect.
Under the planned changes, rating agencies like S&P, Moody’s and Fitch would be supervised centrally in the EU and be subject to possible investigations and on-site inspections from 2011.
EU finance ministers have agreed in principle on a bank tax to pay for future bailouts but there is no consensus yet on how it should be structured. The European Commission has also floated ideas for a financial transactions tax.
The Commission is set to propose changes to the bloc’s securities trading rules in early 2011. Reform of the markets in financial instruments directive (MiFID) will reflect a push for greater transparency in areas such as dark pool or anonymous trading venues for shares.
The Commission will propose changes in December to toughen up the EU’s rules for tackling market abuses by including stronger sanctions.
The Commission is due to present a policy paper on crisis prevention and management in October and will propose a draft law next year which aims to ensure all EU states have effective resolution mechanisms for ailing banks and that they can work together in cross-border cases.
Next year the Commission will propose measures to make lending for home purchases more responsible and promote cross-border competition in mortgages.
The European Commission is expected in early 2011 to come forward with a draft law to make it easier for everyone to have a basic bank account, irrespective of credit history or income.
(Reporting by Huw Jones, editing by Hugh Lawson)