Britain cornered as EU cracks down on hedge funds

* EU finance ministers to back tougher hedge fund rules

* Move puts pressure on Britain’s hedge fund industry

* New curbs could be agreed by July, take effect around 2012

By Gavin Jones and Sumeet Desai

BRUSSELS, May 18 (BestGrowthStock) – European Union finance
ministers will back tough new rules for hedge funds and private
equity groups on Tuesday, spelling a defeat for Britain’s new
coalition government at its first EU meeting.

The new rules are part of a wider set of pledges by world
leaders to learn from the global financial and debt crisis and
create a more stable financial system.

“I expect EU finance ministers to approve the position for
negotiations with the (EU) parliament on hedge fund rules,” said
Spanish Finance Minister Elena Salgado, who is presiding over
the meeting as Spain currently holds the EU presidency.

The measures will require all managers of alternative
investment funds to register and comply with reporting
requirements. They also seek to curb risk-taking and pay awards.

The new rules are likely to take effect around 2012.

Britain is home to 80 percent of the bloc’s hedge funds and
believes the new rules will curb choice for investors by making
it harder for managers to offer funds across the EU’s single
market, which comprises 27 countries.

The United States has also warned that the rules
discriminate against non-EU funds.

Only the Czech Republic has backed Britain in opposing the
expected approval of the new rules by the finance ministers, too
few to block the measure as heavyweights France and Germany push
for a rigid set of restrictions.

“We now have a qualified majority and we get signals from
the new British government that they will try to find an
agreement with the rest of the Council,” Luc Frieden, Luxembourg
finance minister, told reporters.

“There are also positive signals from the European
Parliament, so I think it should be possible to find an
agreement,” Frieden said.

That leaves Britain’s new finance minister, George Osborne,
outvoted at his first meeting with his peers.

“We are hopeful that we can work with the presidency on
making sure our concerns are understood and reflected in the
council negotiating mandate,” said a British official, who
declined to be identified.

The European Parliament’s economic affairs committee
approved its version of the draft measure on Monday evening,
opening the door to formal negotiations on a final deal with EU
states, perhaps by July.

“This is a big step forward,” said Udo Bullmann, a German
socialist involved in brokering support for a committee vote to
back the new law.

“Now it is up to the countries to make a move. It is
important for them to act against manipulative speculators.”

Hedge funds have been accused of exacerbating Greece’s
borrowing difficulties by betting against its debt, although
there are few trading records to show who is active in the
market.

The planned legislation would change that, proponents say,
making it easier for supervisors to see what is happening as
well as intervene by curbing short-selling, for example.

Investment Analysis

(Writing by Huw Jones; Editing by Ruth Pitchford)

Britain cornered as EU cracks down on hedge funds