UPDATE 2-EU states agree deal on hedge fund rules

* New regime puts industry under watch of pan-EU agency

* Britain prevails as France’s Lagarde backs down

* Start of EU-wide licence for foreign funds delayed

(Adds Barnier, Reynders, Lagarde comment, detail)

By John O’Donnell and Annika Breidthardt

LUXEMBOURG, Oct 19 (BestGrowthStock) – European Union countries
agreed on Tuesday to impose new regulations on private equity
and hedge funds, paving the way to a wide range of controls on
the opaque sector.

Agreement came as France and Britain ended a running battle
over EU measures to rein in hedge funds, which some fear pose a
threat to the financial system.

The rules are meant to add transparency, chiefly by putting
the sector under the eye of a pan-European watchdog that France
hopes will gather more powers and grow its 100-strong staff over

“Before, there wasn’t any regulation, any supervision,” said
Michel Barnier, the European official in charge of financial
reform, flagging 72 powers of intervention to be given to a new
EU supervisory agency.

“There is going to be supervision now … European
supervision. Lots is going to change.”

Joerg Asmussen, Germany’s deputy finance minister, applauded
the deal, saying it meant Europe could hold its head high at a
meeting later this week of finance ministers of the Group of 20
of the world’s top economies.

“We wanted to have this guideline ready so we could travel
to the G20 summit and say ‘yes, we have rules in Europe for
hedge fund managers and private equity managers’.”


France backed down on its previous demands to give the new
markets watchdog the responsibility for issuing EU licences for
foreign funds to work across the bloc’s 27 countries. In return,
Britain agreed to delay the start of this new licensing scheme
for foreign-based funds until around 2015.

“It is indeed a compromise,” said French Economy Minister
Christine Lagarde. “We could have probably come up with
something better.”

“We have had innumerable compromises,” said Didier Reynders,
the Belgian finance minister who helped broker a deal. “We have
now got a final text fully supported by all.”

The law will extend the range of information private equity
and hedge funds must hand over, such as what products and on
which markets they are trading.

It also subjects them to summary bans on short-selling, a
power slated for the new EU markets agency.

The EU law, which is set to be waved through by the European
Parliament next month, represents the end of a campaign by
French President Nicolas Sarkozy to clamp down on a group of
investors derided as “locusts” by a German politician.

But as popular interest waned in France and as Paris became
increasingly isolated among Europe’s big powers on the issue,
his position looked increasingly hopeless.

Germany’s Asmussen, whose growing frustration with France
forced Lagarde to compromise, flagged a new system of guardians
to monitor what is happening to investor money at a hedge fund
as well as safeguarding the investments it has made.

This is intended to prevent sham investment schemes like
that run by Bernard Madoff, who paid dividends to investors
using their own money.

“They have the duty to disclose to investors and
regulators,” said Asmussen. “They also have to inform investors
what their investment strategy is … and which leverage they
plan to use.”

The industry gave the new law a guarded welcome.

“There is still much in the directive that will be difficult
to implement and there will be a heavy compliance burden that
the industry will have to bear,” said Andrew Baker, head of
hedge-fund industry group AIMA.

“But the impact will be far less severe than if something
close to the original proposal had been agreed.”

For more on hedge fund rules, click on [ID:nLDE69I1SP]

For more on how EU will police finance [ID:nLDE68L1BY]

(Additional reporting by Daniel Flynn, Julien Toyer, editing
by Rex Merrifield/Ruth Pitchford)

UPDATE 2-EU states agree deal on hedge fund rules