EUROPE - European Union finance ministers failed to agree on a draft law to regulate hedge funds and private equity firms, which the U.K. said could hurt London's competitiveness as a financial centre.
Spain, which chairs EU meetings until the end of June, said more work is needed on the proposals that have also drawn the ire of U.S. Treasury Secretary Timothy F. Geithner. (Click here for related story)
"The outcome today is good," U.K. Chancellor of the Exchequer Alistair Darling told reporters in Brussels. London "is Europe's main financial center, we must not put that financial center at a competitive disadvantage," he said.
The Alternative Investment Fund Managers Directive would force funds based outside the EU to comply with restrictions on bonuses and leverage, if they want to market themselves to investors in the 27-nation bloc. Britain is home to about 80 percent of Europe's hedge funds and 60 percent of its private equity firms. It's also a hub for non-EU funds looking to market in Europe.
"It's incredibly helpful for the U.K. position if we do have more time because it means that politicians can be properly engaged," said Stephen Burke, a director at hedge fund adviser IMS Consulting Group Ltd. in London. "We're running towards an election, and you have to wonder if that's had an impact on the ability of the U.K. to fully influence these things."
Michel Barnier, the EU's financial services commissioner, said "what's good for Europe is also good for London," in response to Darling's comments.
Finance ministers had been scheduled to agree final wording of the draft law proposed by the European Commission last year.
Spain's Finance Minister Elena Salgado said she still aims to get an agreement during her country's six-month presidency of the EU.
The decision to continue talks comes amid growing transatlantic tensions on the law. Barnier vowed to defend the bloc's proposals last week after they were criticized by Geithner, who said in a letter to the Frenchman that the rules may discriminate against U.S. funds.
"We have reached an impasse," Andrew Shrimpton, who advises hedge funds at London-based consultancy Kinetic Partners LLP, said in an e-mailed statement. "The Spanish Presidency has taken the draft directive backwards."
Some of the provisions in the law concerning funds from outside the EU are "protectionist and potentially very damaging to the city," Shrimpton said.
The lack of agreement today shows there are "still significant concerns" about the rules, "both within the EU and internationally," Andrew Baker, chief executive of the Alternative Investment Management Association, said in an e- mailed statement.
EU ministers may have been distracted by discussions on a possible bailout of Greece and also moves to restrict trading in credit-default swaps, Karel Lannoo, chief executive of the Centre for European Policy Studies, said in a telephone interview in Brussels.
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