• By
  • Stephen Fidler




The big fight is over the so-called third-country rules which will govern the activities, including fund raising, of funds from countries outside the European Union.

Bruised from the financial crisis and the sales of fraudulent funds to European investors by Bernard Madoff, France and Germany are determined to put in place a highly restrictive regime that outsiders say would make it impossible for third-country funds to raise money in some, if not all, countries of the EU.

On the other hand, the UK, Sweden and some others are worried that the Franco-German proposal would limit choice among institutional investors. Not only that, it would reinstitute controls over capital flows and be discriminatory to third countries. According to Financial News and the Financial Times, U.S. Treasury Secretary Tim Geithner shares this latter concern.

What could be the answer is a so-called equivalence rule, which in effect would seek to grant funds from countries with good regulatory regimes the right to market funds in the EU. The problem with the equivalence rule is it could take years to put in place; after many years there is still not one in place for the UCITS retail funds regime.

The question therefore is whether an interim regime could be put in and whether national regulations would be allowed to govern matters in the mean time. That would allow U.S. fund, for example, to market in the UK provided it met UK national regulations. But given the public positions taken particularly in Paris, such a compromise is not a foregone conclusion.