Wednesday, March 24, 2010

Key Senator Scores Protectionist EU Proposed Hedge Fund Directive

Joining the growing outcry over protectionist tendencies in the proposed EU Directive regulating hedge funds, Senator Charles Schumer, a key member of the Banking Committee, expressed deep concern that the Directive would overtly discriminate against US hedge funds. In a letter to Treasury Secretary Tim Geithner, he said that the multiple proposals under consideration would all have the effect of significantly limiting or even prohibiting non-EU investment funds from marketing in the EU, despite the fact that EU-based funds have full access to US markets.

If the EU adopts protectionist rules that discriminate against U.S. firms and activities, Sen. Schumer said he will ask Congress to pass equivalent legislation, including measures prohibiting funds that are not headquartered in the U.S. from marketing and raising money in the US and requiring all funds operating in the U.S. to use only U.S.-headquartered custodian banks.

Sen. Schumer urged Treasury to work with Commissioner Barnier, the European Council and the European Parliament to ensure the adoption of provisions that will not discriminate against U.S. firms. Just as EU-based funds and custodian banks currently have full access to US markets, he emphasized, U.S.-based funds and custodian banks should similarly not arbitrarily be denied access to the European market.

The senator endorsed Secretary Geithner’s earlier letter to European Commissioner Michel Barnier, in which the Secretary expressed concern over provisions in the proposed Alternative Investment Funds Management Directive that would discriminate against US hedge funds and deny them the access to the EU market that they currently enjoy. The Secretary urged the Commission to adopt rules ensuring that non-EU fund managers and global custodian banks have the same access to their EU counterparts.

The Secretary pointed out that the US reform legislation will maintain full access to the US market for EU fund managers and custodians. More broadly, he said that it was essential to fulfill the G-20 commitment to avoid discrimination and maintain a level playing field in regulating the alternative investment fund management industry.