Fund Managers Back Geithner On Regulation
Tuesday, March 16, 2010

The Washington-based Managed Funds Association (MFA) has welcomed US Treasury Secretary Tim Geithner's call for the European Union (EU) to engage in talks for reform of the financial regulatory system at a global level.

MFA President and Chief Executive Officer Richard H. Baker, issued the following statement on March 11 in response to media reports on a letter sent from Geithner to EU Commissioner for Internal Market and Services Michel Barnier:

"MFA welcomes Treasury Secretary Geithner’s call for the European Union to participate in globally coordinated financial regulatory reform, specifically initiatives that directly impact the alternative investment industry," Baker stated.

"In expressing our support for an intelligent approach to financial regulatory reform, including fund regulation and registration, MFA has continued to urge the Obama Administration, the Department of Treasury and other relevant federal financial regulators to actively, and substantively, engage their European counterparts to enact a set of reforms that promote transparent, liquid, and stable financial and capital markets. The Treasury Secretary's letter to the EU is an important call to action to restore investor confidence and promote global economic growth," he added.

Geithner's letter, sent to Barnier earlier this month, warns that a transatlantic rift may emerge between the two different approaches the EU and the US could take with regards regulation of the alternative investment industry.

The EU is currently considering proposals for a new regulatory framework for hedge funds under the aegis of the Alternative Investment Fund Managers (AIFM) Directive, but the proposals have prompted strong criticism from the alternative investment industry and certain EU member states, particularly the UK.

Last month, the Alternative Investment Management Association (AIMA) warned that a provision of AIFM Directive is protectionist. AIMA's concerns follow those recently expressed by the UK's Financial Services Authority and the House of Lords European Union Committee.

AIMA’s expression of concern came after the publication of the most recent AIFM Directive compromise text by the current Presidency of the European Council, Spain. The Spanish text reinstates a provision from the original draft that may result in EU investors such as pension funds being prevented from accessing non-EU funds and managers. The provision – Article 35 – had been removed from the Directive by the previous Presidency, Sweden.

A recent report by UK accountancy firm BDO on fund managers' preparedness with the regard the AIFM Directive, which is scheduled to be implemented in 2012, claimed that the majority of the industry is underestimating the potential impact of the directive.

"AIFM is likely to be a major distraction for firms in the run up to its implementation in 2012," the firm said. "Analysts are concerned that the regulations are going to be so stringent on alternative investment fund managers—more so than in the US and Asia—that fund managers in those countries will be less willing to provide access to European institutional investors."