New study may help hedge funds

LONDON (Reuters) – Britain’s Financial Services Authority has commissioned a cost study of a draft European Union law on the regulation of alternative investment managers, a step hedge funds hope will provide more ammunition to dilute the measure.

“We have commissioned some external research through CRA International,” an FSA spokesman said. “It’s trying to quantify the impact, the implications for markets and investors, the potential costs and benefits. It should be completed later this year.”

The E.U.’s executive arm, the European Commission, proposed the Alternative Investment Fund Managers directive earlier this year, accompanied by its own impact assessment that concluded a new law was needed.

The draft law introduces mandatory registration of alternative fund managers in the E.U. for the first time, requiring them to provide data to regulators so they can spot the build up of excessive risks, a lesson learned from the financial crisis.

The hedge fund industry says it is protectionist by posing significant obstacles in the way of non-E.U. funds who will face a loss of business in the E.U.

The measure needs approval from the European Parliament and E.U. states to become law, a process that will gather speed from September with key votes due in coming months.

The move by the FSA will be seen as another step in Britain’s efforts to tone down parts of the draft law, fearing it will damage the sector’s global competitiveness. About 80% of hedge fund assets in the E.U. are managed out of London.

France, however, has said it needs toughening up, setting the scene for a power struggle over coming weeks which finance industry officials expect to spill over into the G20, which meets next month to thrash out common approaches to new financial regulation.