Geithner warns EU on hedge fund regulation plan - report

US Treasury Secretary Timothy Geithner has warned the European Commission its plans to regulate hedge funds and private equity groups could spark a transatlantic row, a paper reported yesterday.

Mr Geithner hit out at a draft European Union directive that would impose tighter restrictions on the investment funds in a letter to the EU's internal market commissioner, Michel Barnier, the Financial Times said.

Proposed new rules might damage US hedge funds, private equity groups and banks by curbing their ability to do business with Europe, Mr Geithner argued in the one-page letter sent on March 1.

The changes would restrict the access of EU investors to funds based outside the 27-nation bloc, and non-EU funds would also be forced to comply with new rules in order to do business inside the bloc.

The directive could also force EU-based investment funds to use local banks for parts of their business, said the report.

Other areas that could cause tension include rules on remuneration and rules on borrowing limits and on disclosure of sensitive information.

European diplomats were to meet yesterday to try to reach agreement on the new proposals before presenting them to EU Finance Ministers on Tuesday, said the newspaper.

The plan would have to be passed by the bloc's lawmakers.

As well causing alarm in the US, moves to regulate hedge funds have raised fears in the City of London, which is home to 80 per cent of Europe's financial services funds.

Britain's financial services minister, Paul Myners, told a meeting of financial services executives on Wednesday that he would fight "line by line and minute by minute" to defend the free movement of capital, said the paper.