Boris Johnson was labelled 'out of touch with reality' for his attempts to water down draft EU legislation on hedge funds
Boris Johnson encountered stiff opposition in Brussels yesterday as he set out to soften European regulations on hedge funds.
London’s Mayor was told by the leader of Europe’s Socialists that the City was getting off lightly in a draft directive on alternative investment fund management and that Britain’s Conservatives lacked the clout to influence the legislation as it passed through the European Parliament.
Mr Johnson insisted that he had held productive meetings with MEPs and with Charlie McCreevy, the Internal Market Commissioner — and his case received a boost from Paul Kanjorski, one of a group of US congressmen meeting MEPs yesterday. The chairman of Washington’s capital markets sub-committee said that the proposed directive “scared the living bejesus out of the hedge fund and private equity community”.
But there was no mistaking the opposition to the Mayor’s case among European legislators. Poul Nyrup Rasmussen, the former Danish prime minister who is now leader of the Party of European Socialists, said: “Boris Johnson is out of touch with reality if he thinks he can water down this legislation.” He added that the proposed reforms were long overdue and encompassed the bare minimum required.
“It is the result of an overwhelming consensus between conservatives, liberals and Socialists in the European Parliament and has strong support from many European governments.
“Instead of getting Mayor Johnson to lobby on their behalf, the City of London should be very satisfied they have escaped so lightly. He says hedge funds and private equity played no role in the financial crisis, but the point is to avoid future crises. In any case, hedge funds and private equity did play a major role in the explosion of excessive debt, which was at the heart of the crisis.”
Peter Skinner, a Labour MEP on the European Parliament Economic and Monetary Affairs Committee, added: “Boris Johnson’s visit illustrates the isolation of the Conservative Party on critical issues that are driven by the European Union.
“There will be regulation on hedge funds and we need to make sure it will be the right regulation, which will protect the interests of the City of London. Influencing the EU does not come from one visit, it comes from sustained relationship-building and a willingness to engage in the EU.”
The draft directive was drawn up quickly in the aftermath of the financial crisis to bring greater transparency to European hedge funds and venture capital management and to limit borrowing.
The industry has warned that the policies would put it at a commercial disadvantage internationally and would drive investors to less bureaucratic jurisdictions, such as Switzerland.
Mr Johnson said: “We came here in peace in a constructive way to set out that, if we get this directive wrong, it risks damaging not just London but the whole of the EU. People understand that the financial services industry has a vital job to do and we want to keep them in Europe.
“There is no suggestion or evidence that investment funds were in any way to blame for the financial crisis and it is difficult to see the justification for this level of regulation.”
Peter Montagnon, director of investment affairs at the Association of British Insurers, called the restrictions on access to the European market that [the directive] would place on fund managers in countries that did not adopt equivalent regulation “protectionist".
He said: “The compliance burden is enormous and will stifle choice, while the purported protections are not particularly helpful to professional investors. Some of those managers the directive will hit are about as remote as you can get from the origins of the financial crisis.”
Scott Garrett, a Republican congressman from New Jersey who was part of the American delegation, told the European Parliament’s Economic and Monetary Affairs Committee that hedge funds’ activities had not been the cause of the global financial crisis. “Your focus should be elsewhere,” he said.
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