Corporate & Securities Law

By Jim Hamilton

Geithner and Barnier Affirm Goal of Non-Protectionist Hedge Fund Legislation

With a vote on proposed hedge fund legislation looming in a committee of the European Parliament, and the US Congress soon expected to legislate the regulation of hedge funds, Treasury Secretary Tim Geithner and European Commissioner for the Internal Market Michel Barnier affirmed their strong determination to avoid regulatory arbitrage in strengthening the global financial system and in putting in place the G-20 financial reform agenda.

In reviewing a range of U.S. and EU priority issues, including the proposed EU Alternative Investment Fund Management Directive, they supported the principle of non-discrimination and the importance of maintaining a level playing field. They agreed that the United States and the European Union, as the world's two largest economies and financial systems, have a special responsibility to implement stronger global financial standards, reduce the scope for regulatory arbitrage and work toward greater regulatory convergence.

In separate remarks at the European Institute in Washington, Commissioner Barnier said that final EU legislation on the regulation of hedge funds and private equity funds is possible soon. He reiterated his opposition to any protectionist or discriminatory outcome with regard to the proposed Directive.

In an earlier letter to EU finance ministers, Secretary Geithner called on the European Union to participate in a globally coordinated approach toward financial regulatory reform and resist protectionist-driven initiatives in the proposed Alternative Investment Fund Manager Directive. Specifically, he asked that EU legislation regulating hedge funds not discriminate against US and other third country hedge funds not based in the EU.

He urged EU legislators not to include a provision that would discriminate against US and other foreign funds and fund managers by denying them the opportunity to access the EU single market through a passport approach, which would be an avenue open solely to EU funds and fund managers. Mr. Geithner urged that this provision be revised to provide US and other non-EU funds, fund managers and global fund custodians the same access as their EU counterparts.

He noted that the US is actively implementing its G-20 commitment to enhance the regulation of hedge funds. The House has passed legislation requiring all advisers to hedge funds and private equity funds whose assets under management exceed a modest threshold to register with the SEC under the Investment Advisers Act. The Senate is set to pass similar legislation. The Secretary told the Finance Ministers that the US hedge fund regulatory regime will give equal treatment to all funds and advisers operating in the US regardless of their country of origin.

Concerns about the proposed EU Directive have also been voiced in Europe, particularly in the UK. At a recent seminar, Dan Waters, FSA Director of Asset Management, said that the proposed Alternative Investment Fund Managers Directive would restrict the access of EU institutional investors to valid investment opportunities in US and other third-country hedge funds while delivering little real benefit to European market stability or investor protection. He said that the draft could be seen as an attempt to protect European funds from competition from legitimate US and other third-country funds.

Full post as published by Jim Hamilton's World of Securities Regulation on May 15, 2010 (boomark / email).