European Parliament approves new hedge fund rules
Brussels (dpa) - The European Parliament gave its seal of approval Thursday to groundbreaking European Union rules on hedge funds and private equity firms, clearing the way for them to be applied as from 2013.
As part of its drive to place financial markets on a tighter leash, the EU is seeking to impose greater transparency on so-called alternative investment funds, which some see as having contributed to the 2008 financial crash with destabilising moves on the markets.
Confirming the provisions of the deal reached last month with EU governments, lawmakers approved the regulation with a 513-92 vote, with 3 abstentions.
"The adoption of the directive means that hedge funds and private equity will no longer operate in a regulatory void outside the scope of supervisors," European Commission President Jose Manuel Barroso said in a statement.
Passage of the legislation was hampered by disagreements between Britain - where most of the European hedge fund industry and foreign-owned funds operating in the EU are based - and France, which spearheaded calls for stricter controls.
The argument focused on whether managers of foreign funds should also benefit from "EU passports" - a key innovation that will allow trading across the bloc using a single licence.
Under the final set-up, managers of non-EU funds will be able to obtain the passports only in return for signing up to international standards against money laundering and tax evasion.
The European Securities and Markets Agency (ESMA), a new Paris- based EU watchdog due to start work next year, is to set standards for the issuance of the permits, which will be handled by national regulators.
On France`s insistence, ESMA also won the power to order national regulators to ban hedge fund activities in case they pose a risk to financial stability.
Parliament, on its part, insisted on curbing "asset stripping" - the practice used by private equity firms to dismantle companies after taking them over in order to make a quick profit - and limiting managers` bonuses.
Under the EU`s tortuous legislative process, EU states are now expected to give their final approval to the legislation, but that step is seen as a formality.
The directive is due to enter into force on January 1, but EU states have two years to incorporate it into their national legislation. Reforms will kick in gradually: EU passports will not completely replace old national authorization procedures until 2018.