Time running out to secure a deal on investment funds

MEPs and ministers are entering a critical few weeks that will determine whether speedy agreement can be reached on regulating alternative investment funds.

The draft legislation presented by the European Commission in April, already heavily criticised by the financial services industry, is now subject to conflicting strains from the European Parliament and Council of Ministers. But both institutions want a first-reading agreement, for which they would need to finalise – and align – their positions by the summer. The Commission also wants a quick deal, to clear the way for other upcoming financial regulation proposals.

Outstanding issues

The Spanish presidency’s first compromise text is expected on 8 February. That would be followed by a heavy schedule of working group meetings to allow for a discussion by ministers in the spring.

The outstanding issues in the Council include liability for depositaries, tailoring regulation for different types of funds, and restrictions on EU marketing of offshore funds. France and Germany want depositary liability strict enough to prevent any repeat of the embezzlement of deposits committed by US financier Bernard Madoff, and tough restrictions on marketing offshore funds. The UK warns that such excessive regulation could damage the EU’s financial-services sector and, by extension, businesses’ access to finance.

Meanwhile, work in the Parliament’s economic and monetary affairs committee has caused anxiety among some governments, notably Finland and Sweden, about the fate of small specialised funds in their countries, such as local venture-capital operations and Finnish forest funds.

A draft report, prepared by Jean-Paul Gauzès, a French centre-right MEP, urges scrapping a proposed exemption for fund managers with portfolios of less than €100 million. Without this exemption, these funds argue they may not survive.

Gauzès says that no decisions have yet been made, as he must take account of more than 1,300 amendments tabled to his report. Asked about removing the thresholds, he pointed out that his report was “a draft”. The committee will vote in early April, and a vote in plenary is foreseen for 14 June.

The Parliament’s liberal group is urging the Commission to withdraw its proposal and present a new one. But Michel Barnier, the next European commissioner for the internal market, is reluctant to do so. He said during his hearing in the Parliament that the institutions should work together to “try and improve it [the text] with the time we have available”.