Europe has taken a major step towards improved financial market safeguards. New rules on hedge funds in the European Union will force alternative investment managers (who deal in higher risk and return) to say where they are investing.
The deal comes after two years of tough negotiations and the US-led global economic turbulence. It is the result of three-way wrangling between the EU Parliament, the member states and the European Commission.
Reservations in financial giant the UK have at last been overcome and so a marketing “passport” will now apply conditions for a hedge fund to do business throughout the EU, without seeking individual countries’ approval.
Proponents say it is high time, with the explosion of speculative investment funds in recent years – 300 in 1990, 8,500 now. Then came trouble: In 2008 they represented some 2,000 billion dollars, tumbling to perhaps 1,300 billion last year.
In a bid to prevent future collapses such as that of Lehman Brothers in the US, the EU will also require cooperating funds and managers from outside the EU to meet international tax and anti-money laundering criteria.
Subject to a full European Parliament vote and final signing by the EU states, European leaders will arrive at this November’s G20 meeting in Korea with their directive passed.
It will come into force in January.
EU-based managers and funds are expected to have their operating passports in hand by 2013, non-EU funds from 2015.