MEPs and member states at odds over hedge funds and supervision

Commission calls for quick agreement but Parliament’s vote could be postponed.

National governments and MEPs are struggling to reach agreement on legislation aimed at regulating hedge funds and overhauling financial supervision.

The European Commission is urging quick agreement on the proposed laws, saying that they are essential to prevent a repeat of the financial crisis. The Commission fears that the will to strike a deal on the legislation may wane if decisions are delayed beyond the European Parliament’s summer recess, damaging Europe’s credibility in the G20 group of emerging and developed countries.

Representatives of the Spanish government, which holds the rotating presidency of the Council of Ministers, clashed with MEPs at a meeting on Monday (31 May) that was arranged to resolve differences over the proposal for a directive regulating alternative investment fund managers – mainly hedge funds.

Access to external funds

According to officials close to the negotiations, the two sides were at loggerheads over whether national governments should retain responsibility for deciding how much access investors get to funds based outside the EU (such as hedge funds and private equity funds). The Parliament is adamant that access conditions should be regulated at EU level and that national rules and placement schemes should disappear. National governments, however, are unanimously opposed to this suggestion.

The officials said that Jean-Paul Gauzès, a French centre-right MEP and the Parliament’s lead negotiator, told the Spanish that it would be better to have no directive than accept the governments’ position, as it ran counter to the principle of a single market. He has strong support on this point from the Parliament’s Socialist and Green groups.

Single market ‘passport’

MEPs are also at odds with the member states over whether fund managers based outside the EU should be able to apply for a ‘passport’ to operate across the single market. This idea received strong backing from MEPs in a vote in the Parliament’s economic and monetary affairs committee on 17 May, but was excluded by national governments from their version of the proposal, approved on 18 May.

The next meeting between the negotiating teams will take place on 9 June. The two sides are aiming to broker a deal in time for MEPs to vote on the proposal on 6 July, its last plenary session before the summer recess, although this looks increasingly optimistic.

Slow progress

Discussions on other proposals to reform financial supervision are not advancing any faster. Spanish officials and MEPs held a second round of negotiations on the reforms on Tuesday (1 June), but the two sides disagree over whether an EU-level authority should have responsibility for the day-to-day supervision of large banks. Member states are strongly opposed to this step, which Parliament considers essential. The disagreement has prevented the negotiators from tackling other likely sticking-points, including MEPs’ wish to create a pan-European bank resolution fund.

The Parliament planned to vote on the supervisory reforms on 16 June, although it is likely that the vote will have to be moved to July. The next negotiating round is scheduled for 10 June.

Michel Barnier, the European commissioner for the internal market, has called on both governments and Parliament to show “openness and flexibility” in their negotiations. “Time is running out…we cannot afford failure,” he said