As from 2013 it will be possible for European hedge funds to apply for authorisation to sell their products to professional investors throughout the European Union.
A compromise agreement was reached between the European Parliament and member states in order to have a new reg-ulatory mechanism for the hedge fund and private equity industry.
According to the deal, a so-called European passport will become available in 2015 to enable non-EU hedge funds to be traded across the EU.
However, the existing na-tional schemes covering private investment may remain in place until 2018.
This means that the member states can continue to authorise non-EU hedge funds to operate in their own country without having to abide by EU rules, but after 2018, EU authorisation will be compulsory.
Following the agreement reached on the draft directive on management of alternative investment funds (AIFM), one week after the unanimous compromise deal reached by EU Finance Ministers, Belgian Finance Minister Didier Reynders said that the politicians had managed to agree on fair rules for European and foreign hedge funds.
European Internal Market Commissioner Michel Barnier said that this was the first time that EU rules would govern hedge funds and private equity funds, which are key to financial stability, covering around €2 billion of assets and sometimes accounting for half of all financial transactions.
The idea of a European passport for EU and non-EU hedge funds alike was primarily defended by the United Kingdom where some 80 per cent of the hedge fund market is located. France originally opposed the idea but finally came round on condition that the European Supervisory Authority for Securities Markets, which will be set up in January, plays a key role in awarding the passport.
ESMA will now have to be informed about all passport applications and will centralise a blacklist of rejected hedge funds.
Under the powers conferred in the EU’s financial supervision legislative package, ESMA may ask the national authority of a host member state for non-EU funds to restrict the fund’s activities in the event of dangers to financial stability.
In parallel, non-EU countries where funds are located should undertake to cooperate with member states by exchanging tax information and other data to prevent money-laundering.