EU deal on hedge funds ‘passport’

PRIVATE equity and hedge funds will have access to all 27 EU countries with a single registration and be subject to EU-wide regulation following an agreement by finance ministers.

The agreement, which has taken months to agree, ended a row between Britain and France on the measures and replaces funds having to sign up with each individual country to sell to investors.

France agreed to allow foreign funds to operate in the EU — a key demand by Britain and one backed by the US — under a so-called passport system, provided the countries involved reciprocated the arrangement.

Britain agreed the passport will be delayed until 2015 and that the hedge funds will be supervised by the Paris-based European Securities and Markets Authority (ESME), one of three new EU bodies to supervise the financial sector that will operate from next January.

The new structure will require greater transparency from funds, regulate investment managers’ bonuses and give ESME the power in exceptional circumstances to shut down funds judged to threaten the system.

It is hoped the added transparency and powers to monitor what is happening to investments will prevent rogue schemes from operating, such as that by US financier Bernard Madoff.

There was huge pressure to reach agreement on the issue ahead of the G20 meetings as hedge funds is one of the areas they had agreed to move on.

French Economy Minister Christine Lagarde, having signed off on the final details, told fellow ministers in Luxembourg yesterday, “It is indeed a compromise. We could probably have come up with something better.”

But Didier Reynders, the Belgian finance minister who chaired the meeting and helped broker the deal, was jubilant. “We have now got a final text fully supported by all” he said adding that they could hold their heads high at the coming G20 meetings.

Irish officials also welcomed the agreement despite having concerns.

“We had concerns about the liability of the depositor and valuer and we were also keen to see that venture capital be excluded from the scope of the directive.”