Some Nervous about New EU Financial Mandates

May 14, 2010 ( – Tough proposed regulations by the European Union (EU) of hedge funds and private equity concerns may represent an early political defeat for U.K. officials fearing the new mandates could drive away financial organizations.

According to an Associated Press news report, the EU vote scheduled for next week could be a blow to new Prime Minister David Cameron and potentially tie Cameron more closely to U.S. officials who have moved cautiously in the area of hedge fund regulation.

The news account said that while many in Britain have focused anger on the financial services sector over its activities before and during the economic slowdown, others fear the new mandates could drive hedge funds or private equity concerns out of the E.U. to nations such as Switzerland or Singapore.

Included in the new mandates would likely be rules that managers of large funds doing business in Europe register with local market regulators and regularly inform supervisors about their trades and risk exposure to prove they don’t pose a threat to the financial system. The news report said hedge funds and other financial entities would have to disclose their overall trading strategy and their risk management system, explain how they value and hold assets, and be obliged to hold a minimum level of capital to cover potential losses.

It is unclear if the version of the rules that is passed would bar the marketing of funds in Europe if they are based in more lightly regulated locations such as the U.S.

The Associated Press account indicated that Cameron has strongly opposed regulatory changes that would lock foreign funds, including U.S. funds, out of entry to London, which is Europe’s main private equity center and home to 80% of the region’s hedge fund industry.

U.S. Treasury Secretary Timothy Geithner has written to Europe’s commissioner for financial regulation, Michel Barnier, expressing concerns that European regulations would discriminate against American firms, the news report said.