Malta Opposing EU Crackdown on Hedge Funds


Malta is opposing a European Union crackdown on hedge funds as regulators are proposing new disclosure rules that could block foreign-based funds from the 27 Member States, The Malta Business Weekly has learnt.

EU Finance Ministers met this week to reach agreement on the new rules to oversee hedge funds but had to postpone to broker a deal with the dissenting countries.

Malta, together with Cyprus and Britain, are thought to be the only EU Member States to be opposing the new rules which require fund managers to register in Europe and supply more information on their trades and risk exposure to minimise the threat to the financial system. Under the proposed rules, fund managers would have to disclose their trading strategy, risk management system and explain how they value and store assets and be obliged to hold a minimum level of capital to cover potential losses.

According to a publication issued by FinanceMalta in January, Malta “is gearing up to challenge established hedge funds jurisdictions in Europe, as the country is in an advantageous position following the financial crisis”. The value of assets of funds domiciled in Malta stood at EUR500m at the end of 2001 but this rose rapidly to EUR8.8bn by the end of 2007 before falling to EUR6.6bn at the end of 2008.

Spanish Finance Minister Elena Salgado said her country, which currently leads EU talks, would try to broker a deal with “as many concessions as possible” to get the full agreement of all 27 finance ministers in May or June.

News wires reported that diplomats said that Britain, Europe’s centre for the hedge fund and private equity industry, was “very isolated” and will likely have to bow to other nations, led by France, which want to toughen supervision and transparency requirements for funds based outside the 27-nation bloc. EU governments usually try first to get a compromise before moving to overrule one country, preferring to water down rules to suit all of them.

“If you take an American hedge fund managed in London, under the draft we had in front of us today it would have been subject to increased requirements,” British finance chief, Alistair Darling told reporters. “That would not then automatically mean it could go and operate in other European countries.”

US Treasury Secretary Timothy Geithner wrote to EU officials last week, warning them that the draft rules could also block American funds from selling to European investors.

That irked EU officials. Michel Barnier, the EU commissioner for financial services, said he was “not amenable at all to pressure” and would not take instructions “from Paris or London and certainly not from Washington”.

“We need to work together without there being any pressure on either side, that’s my state of mind in dealing with the Americans,” he said.