The ministers’ approval came less than 24 hours after members of the European Parliament’s Economic and Monetary Affairs Committee (Econ) also endorsed them, as reported.
It is increasingly clear to observers of the progress of the so-called Alternative Investment Fund Managers (AIFM) directive that major differences remain to be settled between different versions of the regulatory package, which has been vociferously challenged by many in the funds and private equity industries.
Negotiations on these differences will begin later this month and it is anticipated they will be completed by the end of July, when the parliament’s annual summer break begins.
Among the subjects most closely watched and debated is what are known as the directive’s “third country rules”, which would establish how funds based outside of the EU may be marketed to investors within it – and under what circumstances investors inside the bloc may buy funds domiciled outside it.
Some outside the EU have suggested that efforts to place significant restrictions on such cross-border activities could be seen as protectionist.
Another concern is the extent to which individual countries within the EU may have a say in the way funds are managed, bought and sold within their borders.
George Osborne
Britain’s new chancellor, George Osborne, attended the vote in what was his first trip to Brussels since the UK’s general election two weeks ago. The UK, which is home to around 8 in 10 of Europe’s hedge funds, has consistently expressed concerns about the AIFM directive, in part because the third country rules could affect the large percentage of these which make use of non-EU jurisdictions, such as the Cayman Islands, Jersey, Guernsey and the Isle of Man.
Many in the UK investment fund and pension fund industries have argued that the regulations would drive up costs for European buyers – including institutions such as pension funds – and reduce investor choice.
Javer Echarri, secretary general of the Brussels-based European Private Equity and Venture Capital Association, said in a statement on Tuesday that although his organisation had “fresh hope” that “constructive debate on the flow of funds between the EU and third countries” would now take place, “this legislation still poses a grave threat to innovative companies backed by venture capital”.
He added: “Unwarranted disclosure requirements would leave ideas-fuelled [small businesses] at the mercy of unfair and damaging competition. Why Parliamentarians wish to punish SMEs remains the greatest mystery of the post-crisis regulatory response.
“A solution that balances cross-border transparency and cooperation with the need for investor choice and finance for European business, is an absolute priority. ”
Other critics of the proposed directive have included the UK’s Investment Management Association, National Association of Pension Funds and Alternative Investment Management Association.
US Treasury Secretary Tim Geithner has also expressed concern that it would "discriminate" against US firms.
However, most other European countries, with the exception of the Czech Republic, broadly support the directive because, they say, it could help to prevent a future financial crisis by forcing companies to meet high standards of transparency and to retain greater capital reserves than are now required.
