The French government has emerged as the main obstacle to a deal on EU legislation to regulate alternative investment funds, such as hedge funds and private equity.

Negotiators from the European Parliament and the Council of Ministers are struggling to reach agreement on the draft legislation, which the European Commission proposed in April last year as part of the EU’s response to the financial crisis.

Click Here: New Zealand rugby store

But France is contesting a compromise drawn up by Belgium – which holds the rotating presidency of the Council of Ministers – and MEPs. It objects to what it sees as a reduction in its rights to control fund managers based outside the EU.

Foreign managers

The treatment of non-EU fund managers has proved one of the main sticking points in discussions between the Parliament and the Council. The Parliament wants common rules for non-EU managers, which would grant everyone meeting the rules a ‘passport’ to market funds across the EU. Most member states, by contrast, favour retaining national rules (known as private placement schemes) on market access. The UK has been an isolated supporter of an EU passport for foreign managers.

The compromise under discussion between Belgium and MEPs would retain national rules, but partially harmonise them, and would allow a passport principle to apply in some cases. This has been greeted as a potential route out of a difficult impasse by some governments, and by Jean-Paul Gauzès, the Parliament’s lead MEP on the subject. 

“It would be a terrible thing if we could not reach a reasonable agreement between the Council and the Parliament, because this is an area where our fellow citizens are very concerned,” Gauzès said.

But Christine Lagarde, France’s finance minister, has informed the Belgian presidency that the compromise is unacceptable, because it would go too far in restricting national authorities’ ability to impose rules on foreign managers.

Private equity

The Parliament and the Council are also divided over how the legislation should affect private-equity funds. MEPs favour stronger regulation of private equity than can be accepted by most member states.

Gauzès was meeting the Belgian presidency at the time of going to press in an attempt to make headway on this issue.

Both sides hope that a deal can be reached on the draft legislation in time for the Parliament to vote on it at its plenary session on 18-21 October. The Parliament had intended to vote this month, but decided to delay to give more time for negotiations.