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Press release
Hedge funds directive: MEPs start scrutiny of draft legislation
Economic and monetary affairs - 23-02-2010 - 15:48
Committees
Committees
Economic Affairs Committee MEPs began debating draft legislation on regulating hedge funds on Tuesday. The most salient issues emerging from over 1,600 amendments tabled were the size, location, marketing and leverage of funds.
During the discussion a number of issues were raised by rapporteur Jean-Paul Gauzès (EPP, FR) and also by the shadow-rapporteurs of the political groups and other MEPs.
Scope
According to the proposal by Mr Gauzès, managers of funds with less than €100 million should also be covered by the directive but suggests the use of a proportionality rule which would ensure that less significant funds could be exempt. The directive would impose new conditions and obligations on fund managers falling within the scope of the directive as well as on the fund's depositary and its valuator.
At the meeting, Mr Gauzès insisted that the proportionality rule would need to be "very well defined, so as to avoid catching funds which need not be over regulated". Peter Skinner (S&D, UK), agreed: "we will lose the battle with the Council if we go back to the thresholds approach", he said.
Mr Gauzès' proposal also broadens the scope to cover offshore fund managers established in the EU and limits the possibilities for pension funds, insurance firms and credit institutions to be exempt from the rules. In his intervention however, Mr Gauzès emphasised that he would clearly define what should not be considered a fund and will therefore not fall under the directive. Robert Goebbels (S&D, AT), agreed that exemptions should be kept to a strict minimum.
Marta Andreasen (EFD, UK), said that investment trusts like those in the UK must be excluded. Sharon Bowles (ALDE, UK), warned that including private equity companies within the scope would place them at a disadvantage vis-à-vis other private companies.
Marketing rules and non-EU domiciled funds
Marketing rules and non-EU domiciled funds
The rapporteur's draft proposes granting a "European passport" to allow any EU-domiciled fund to be marketed throughout the EU. It agrees with the European Commission that the marketing of non-EU funds within the EU should be subject to authorisation by individual Member States, but removes the initially proposed three-year wait before this takes effect.
In the meeting, Mr Gauzès said he would be ready to work on the idea of a transition period in which the equivalence of supervisory standards in third countries would be verified, possibly by the Commission. If after such a period equivalence were not recognised, the marketing of the non-EU funds concerned would be prohibited.
Robert Goebbels, warned against favouring non-EU funds. By contrast, Syed Kamall (ECR, UK), observed that "we must avoid discrimination against third country funds. The new position proposed by Mr Gauzès is good provided it is clear to third country jurisdictions what the equivalence rules are".
Leverage
Fund managers should define in advance the leverage (borrowing) limit which they will use for each fund, according to Mr Gauzès' draft, which also provides that the Commission may itself set leverage limits if it receives such advice.
"Defining leverage is more difficult than it may at first appear", said Wolf Klinz (ALDE, DE), who felt that Member States should nonetheless have the option of laying down certain conditions.
Sven Giegold (Greens/EFA, DE), felt that the report's leverage provisions were too weak. "This issue will need to be cleared up quickly", he said. Ms Andreasen replied that hedge funds' use of leverage has declined considerably and that therefore "leverage caps today are outdated. The industry has moved on."
Short-selling
Short-selling
Mr Gauzès would subject short selling to a harmonised regulatory framework and proposes that the European Markets Authority be empowered to restrict it.
"It is immoral to influence markets through the practice of naked short-selling and such scandalous practices need to be eliminated", said Mr Goebbels. The directive needs to be strict, so as to protect companies from such practices, agreed Mr Giegold. By contrast, Mr Kamall called for a distinction to be made between naked and covered short-selling with the latter being a valid activity to increase liquidity.
Remuneration of managers
Remuneration of managers
The rapporteur proposes applying the G20 principles on bankers' pay to fund managers. Pay should be linked to risk and would need to be disclosed. Mr Kamall observed that it would be unwise to follow the remuneration philosophy applied to the banking sector because fund managers are rewarded on their performance and their priorities are often the same as those of the investors.
Next steps
Next steps
Mr Gauzes presented his draft report to the Economic and Monetary Affairs Committee members in December 2009. A further discussion of the amendments will take place on 17 March. It is expected that the amendments will be put to a committee vote in mid-April and a plenary vote in July.
REF.: 20100223IPR69353