At a conference in London, UK Financial Services Minister Paul Myners and the chairman of French market regulator AMF, Jean-Pierre Jouyet, outlined their major points of contention with the EU draft directive to regulate alternative investment funds.
The French and British positions converged on the four main points that have dominated the debate since the unveiling of the directive: passports, leverage caps, custody and private equity disclosure.
Since the onset of the crisis, President Sarkozy has railed against the lack of supervision of financial services, saying “no financial institution should escape regulation and supervision".
'No' to passports
France says it "strongly" opposes giving offshore funds a "passport" to offer products across the EU and says each member state could allow offshore funds to offer products locally only. A full passport should be limited to funds domiciled in the EU, France says.
The directive would bar fund managers in non-EU countries from offering products to institutional investors in the EU unless they complied with the new law.
Britain says this will reduce competition and choice for European investors.
No 'one size fits all'
One of the key recommendations made by the G20 for reform of financial markets is imposing a regulation on the capital requirements of banks to absorb the risks experienced during the crisis.
The draft AIFM law similarly imposes capital requirements on fund managers to contain risks and keep markets stable, but Britain wants a more tailored approach to hedge funds and private equity.
France also says imposing leverage caps may not be efficient and proposes making fund managers report on the use of leverage. The planned new European Securities Markets Authority should have powers to assess and intervene when needed, France says. Banks that have hedge funds as counterparties should also set limits for their exposures.
France wants a European register to record all the key data on risks obtained from managers.
Britain is concerned that as drafted, the law may impose strict liability on depositories so that if assets were lost, they would have to compensate for them in full.
'No' to custody and to disclosures
The draft law only allows a bank based in the EU to carry out the function of custody, or safekeeping of assets on behalf of a fund. Britain says this would reduce competition by giving business to a small group of banks.
France says provisions on depositories need clarifying and need "profound" amendment to be adapted to each type of fund and include supervisory functions. France agreed with Britain that investment firms should also be allowed to become a depository.
Lastly, private equity groups would have to make disclosures to employees, shareholders and target companies. Britain says this could lead to less investment by private equity groups in European companies.
Overall France, closely aligned with the UK view, says the obligations of the draft law should be adapted to the type of fund, its size and the risks it poses.
(EurActiv with Reuters.)
