Talks have collapsed between European lawmakers and national representatives to agree new controls for hedge funds, following a dispute that many fear could spoil Brussels' attempts to overhaul financial regulations.
On Thursday, the parliamentarian leading negotiations with European countries said he had disbanded efforts to reach agreement this month, a deadline set by officials to agree rules to clamp down on hedge funds and private equity.
"The Spanish Presidency [of the European Union] informed me it would not be possible to reach a deal before the end of June," French centre-right MEP Jean-Paul Gauzès (European People's Party) told Reuters.
Gauzès' committee is negotiating on behalf of the European Parliament, in an effort to reach a compromise with countries on a law which would then go to a full sitting of parliament for a final green light.
"I have yesterday taken the decision to delay the vote until the second parliamentary session in September," the French lawmaker said, signalling a lapsing of the summer deadline.
The breakdown comes shortly before EU leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, travel to Toronto for a meeting of the Group of 20 major economies.
They want to champion Europe as a model for ambitious regulation. But an impasse over hedge funds and watchdogs means the EU is struggling to draft laws, while US President Barack Obama is to sign off on new rules to regulate finance within weeks.
One diplomat accused the Parliament of putting the 27-country bloc's overhaul of banking regulation at risk. "The parliament is being very assertive," he said. "But by putting their foot down, the whole thing could fall through."
Michel Barnier, the European commissioner in charge of an overhaul of banking rules, said: "The quicker we can reach a final agreement, the better."
At the heart of the row is a passport scheme or licence for foreign hedge funds to do business throughout Europe. Lawmakers want to block the entry of foreign funds that fail to qualify for a licence because they do not meet EU standards.
But countries such as Britain, home to nearly all European hedge funds, want to give funds that fail the EU passport test a second chance by letting them apply for a licence to operate in individual countries.
Parliament, which is keen to flex its muscles having last year won extra powers to change or veto almost all European laws from banking regulation to agriculture and immigration, is reluctant to give ground.
The two sides clashed earlier in the week at a meeting after it transpired that many of those present had not read a last-minute compromise proposed by Barnier's staff.
(EURACTIV with Reuters.)