Europe Puts Off New Hedge Fund Regs

Filed in archive Legal on June 26, 2010

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The European Union will put off any new regulations for hedge funds for a while - probably until at least September (see Euractiv, NY Times).

Talks broke down between the European Parliament and individual member states last week on the subject of new regulations for hedge funds and private equity. The European Commission has been working on a new set of rules for these types of financial institutions for almost 15 months now - since April 2009. The breakdown of the talks was something of an embarrassment right before the start of the G-20 meeting, especially since the US Congress appeared to make a breakthrough on financial reform at about the same time.

Two main concerns seem to be holding up progress on this aspect of broader banking and financial reform in Europe. First, the traders in the UK have suggested that the proposed new rules could make it harder to trade in hedge funds across member-state boundaries within the European Union. Second, many member states have complained that the new rules could create an unfair advantage for hedge funds and private equity funds outside the EU.

The second argument was used in the US to weaken rules on derivatives and complex financial instruments. The idea, basically, is that tough rules in the US or Europe on riskier financial instruments simply drive investors offshore.