The European Union has defended planned rules for hedge funds against criticism from Washington, saying on Thursday its proposed regime was in line with an international accord to increase transparency.
U.S. Treasury Secretary Tim Geithner has complained to EU financial markets chief Michel Barnier about moves to clamp down on hedge funds that would curb their borrowing and pay, the European Commission said.
Barnier's spokesman hit back against the criticism, denying the proposed EU rules were protectionist.
"The EU decision to act on hedge funds is in line with a G20 decision to reinforce transparency," the spokesman said.
"New hedge fund rules do not discriminate against foreign players and are not protectionist." Brussels wants foreign investors — such as New York hedge funds based in London — to face closer supervision and transparency.
But Washington is concerned such demands could hobble hedge funds' efforts to attract money from wealthy Europeans and other local investors.
The spat comes at a critical time for the industry.
Sources with knowledge of the matter told Reuters on Wednesday that Britain is preparing to make concessions to Germany and France that will pave the way for finance ministers to unveil draft regulations on hedge funds next week.
A deal would not limit the short-selling of credit default swaps — insurance against an unpaid government bond.
Many say trading in such instruments compounded difficulties in Greece, the most troubled euro zone economy. It would, however, send a signal that the EU is acting decisively against an opaque industry.
Although watered down in negotiations, the rules will put secretive investors under unprecedented scrutiny by regulators.
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