A deal on pan-European rules for hedge funds and private equity funds moved closer after France dropped its outright opposition to a key element of the European Union’s proposals.
But the French concession was made subject to strict conditions, ensuring that there will be more lengthy negotiations ahead.
This is progress but not yet a breakthrough,” said one diplomat.
Until Wednesday, Paris had been adamantly opposed to draft legislation that would give non-EU fund managers pan-EU marketing rights, or a so-called passport, provided certain conditions were met.
This proposal is backed by the European Commission, European parliament, and some countries, including the UK.
But it would be a significant shift from the current system, whereby funds outside the EU seek approval from member states individually if they wish to sell into EU markets.
French officials now say that they are prepared to accept the principle of a passport for third-country funds, subject to strict conditions.
In particular, Paris insists that it should be the new European Securities and Markets Authority which issues a passport to a third-country fund and then supervises that fund.
The French move came just 24 hours after Tim Geithner, US Treasury secretary, sent a letter to Christine Lagarde, French finance minister, protesting at France’s hostility to a passport for third-country fund managers.
“A proposal that limits or delays the access of third country firms to a passport – while granting EU domiciled managers and funds access to the EU market – would be discriminatory and contrary to G20 [Group of 20 leading economies] commitments,” he warned.
France denies that charge: “Our position is not protectionism but has always been about ensuring maximum protection for investors,” an official said.
The French move is likely to breathe new life into the long-running negotiations over the hedge fund and private equity fund rules, which had appeared to be blocked over this issue.
But the role of ESMA could be controversial and much may depend on whether the system of national approvals continues in parallel once a passport is available.
Under its concession, France would be prepared to support a compromise where the current rules remain in place for years.
Officials envisage that, in perhaps 2014-16, ESMA would recommend introducing a passport regime and Brussels would pass regulations giving the authority the powers to run it.