It’s been a busy week for financial regulators in Europe. Germany rattled the markets on Wednesday by slapping a ban on naked short selling, while EU finance ministers approved draft rules clamping down on hedge funds and private equity. The new rules could have a “terrible effect” on London, said Philip Keevil of Compass Advisers. According to the FSA, Britain is home to 80% of Europe’s hedge funds and 60% of its private-equity managers. Outnumbered by his colleagues, Chancellor George Osborne refrained from fighting a last-ditch battle, saying that there was “still much to play for” before the rules are due to be finalised in July.
What the commentators said
The texts agreed by the finance ministers and the European parliament still need to be reconciled, so there’s a bit of “haggling room”, said James Moore in The Independent. But this can only temper the impact of “the dead hand of Euro regulation…the die is now cast”. One part that looks “too draconian” is the high price non-EU funds will have to pay to market themselves in the EU, noted The Economist. Their home supervisors would have to ensure they comply with EU rules, “a bit of regulatory over-reach that will not go down well in places like America”.
Another unintended consequence of the measures will be to undermine financing for small- and medium-sized firms, said Moore. The measures cover venture capital, and squeezing this sector at a time when small firms are still starved of funds because banks won’t lend “is the height of stupidity”. There are even bigger battles ahead, including plans for an EU-wide regulatory system for financial services and a review of the EU budget, said George Parker in the FT. Osborne didn’t make a fuss this week because he had to “conserve his political capital”.