It could have been a shining example for the new EU. An EU that says good-bye to its deregulation ideology of the past years and which gives a clear commitment to do everything in its power to prevent such a crisis as the current one from ever happening again. Instead, it became once again a victory for the financial lobbyists. At the height of the crisis, the G20 - the world’s 20 leading economic powers - had made a commitment that all financial market players should be regulated and supervised. Including hedge funds and private equity funds, which claim that they did not trigger the crisis, which, however, the MEP Udo Bullmann (S&D) appropriately described as “accelerant”. After all, as EU Internal Market Commissioner Michel Barnier recently pointed out, they are responsible for 50 % of the daily turnover at global securities markets and therefore pose a significant risk to the stability of the global financial system.

Last year, the Commission adopted with great pomp and under significant political pressure before the European Parliament elections a draft proposal on the initial regulation and supervision of the industry. “More holes than a Swiss cheese”, was the verdict of the President of the Party of European Socialists, Rasmussen, who as an MEP together with other parliamentary groups, had asked the Commission in vain for years to introduce legislation. But even that proved too much for the industry. It employed and still employs an army of lobbyists and PR specialists to convince governments and MEPs that as little as possible or preferably nothing should be regulated. As if the financial crisis had never happened.

This week, however, Brussels saw a showdown. The Member States in the Council and parallel the MEPs had debated the Commission proposal for months. It had been expected that the finance ministers would tie up the package. The finance lobby had brought their guns into position again some days prior. In an open letter to EU Internal Market Commissioner Michel Barnier, US Finance Minister Timothy Geithner warned the Europeans to accept the proposal. And one day before the vote, the industry published a survey carried out among their members, which coincidentally revealed that a large part of institutional investors would reduce their investment activities by more than 30 % or abandon them altogether, if the Directive of the EU would be implemented in its current form. Unconcealed threats by the financial lobby, which a long time ago seized to be committed to democracy.

What had to happen, happened. The British, only supported by Cyprus and Malta, stood isolated against the rest of the Member States. As decisions in the Council are taken with qualified majority, it would have been easy to outvote them. However, the other Member States got cold feet - apparently out of considering of the coming General Election in Great Britain in May. As a result, the matter was postponed to the next ECOFIN meeting in May. What will happen to the Directive, if the Euro-Sceptic Tories should be in Government by then, is open to question.

A bleak result from the employees’ point of view also in the European Parliament, which now, because of the delay, must present the matter to the Council. This week, the Conservative rapporteur Jean-Paul Gauzès (EPP) presented his so-called compromise amendments. Previously his report had attracted the incredible number of 1,700 amendments - most of which still hot from the typewriters of the financial lobby. Gauzès now summarized the core problems in only a few points, where he hopes that agreement will be reached between the majority of MEPs and with the Member States. The result might be evidence of the Frenchman’s negotiation skills, its substance, however, falls far short of his original report. A wealth of exceptions for all possible types of funds and the reintroduction of threshold values (EUR 100 resp. 500 Mio.), below which the Member States are able to retain special national regulations, through the backdoor is not exactly a testament to European will to shape things. The result is a confusing patchwork rug that almost invites people to go round it.

Another example: the hotly fought over European passport. In accordance with the proposal of the Commission, the Directive was supposed to be made palatable to hedge funds by promising that they would receive an EU quality seal in future, which would enable them to sell their products throughout Europe. The problem: what about funds, which are not located within the EU? It is a well known fact that the majority of hedge funds domiciles in so-called Offshore centres, such as the Cayman Islands or the British Virgin Islands - and probably not because of the beautiful weather. Here the Member States - with the exception of the British, who dominate 80 % of the hedge funds business in Europe - for once showed courage. Funds from third countries, who are not registered in the EU, will not get a “European Passport” for the time being. This was immediately followed by an outcry from the USA and the United Kingdom. And in Parliament, Gauzès too seems to have fallen for the charm of the numerous delegates from the Cayman Islands. In his latest version, he proposes a complicated cascade of authorisations, which should allow the Commission to determine that non-EU States have legal regulations, which are similar to those of the EU. The Caymans are already prepared. They explained to the parliamentarians, that the regulatory system of the Caymans “was one of the best in the world.”


Further Information

AK Position Paper on the Draft Proposal on the Alternative Investment Fund Managers Directive