Geithner Slams France's Opposition To EU Hedge-Fund Plan

Date: Thursday, October 7, 2010
Author: Nathalie Boschat, The Wall Street Journal

-U.S. Treasury Secretary Timothy Geithner expressed concern that France's opposition to EU proposals for new rules to supervise the hedge-fund industry risks creating unfair competition that would penalize non-European players.

In a letter sent Tuesday to French Finance Minister Christine Lagarde, U.K. Chancellor of the Exchequer George Osborne and German Finance Minister Wolfgang Schaeuble, Geithner said France's stance could engineer discriminatory practices, contrary to commitments made by the world's 20 largest nations to maintain a level playing field in the financial services industry.

"A proposal that limits or delays the access of third country firms to a passport--while granting EU domiciled managers and funds access to the European market--is discriminatory and contrary to G-20 commitments," Geithner said in the letter seen by Dow Jones Newswires.

The EU presidency recently made proposals that would allow non-European hedge-fund managers and funds to be granted a "passport" to operate across the European Union, thus giving them the same access as European fund managers and funds.

According to Geithner's letter, which welcomed the EU plan, France has expressed opposition to such a proposal and is pushing for EU member countries to be allowed to opt out of the passport.

A French government official reiterated France's long-standing refusal to grant non-EU players a passport along the lines of the EU proposal, but denied France was pushing for an opt-out clause.

France has recently offered a compromise, which would allow non-European funds to operate across Europe under the supervision of the new European securities regulator which will come into force early next year, the official said.

France has long argued that investors in a non-European fund wouldn't benefit from the same amount of protection as that offered by EU jurisdictions in case the fund encountered financial difficulties.

It has also made the case that granting a passport to non-EU funds risks encouraging regulatory arbitrage, as these funds would try to obtain their licence to operate across Europe from jurisdictions with the loosest regulation.

-By Nathalie Boschat, Dow Jones Newswires; 202-892-9285; nathalie.boschat@dowjones.com