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EU: Alternative Investment Funds

Volume 711: debated on Thursday 18 June 2009

Question

Asked By

To ask Her Majesty’s Government what position they will take at the meeting of the European Council on 18 and 19 June on the draft Alternative Investment Fund Managers Directive.

My Lords, the Government support the principle of a harmonised regime for alternative investment products, to help to develop the single market and to provide a framework for dealing with potential systemic risks on a cross-border basis. The current proposals contain flaws. We will continue to work constructively with our partners in the EU to secure improvements.

My Lords, I thank the Minister for his reply. However, especially given his great experience in this sector, he may be a little complacent about the threat to London’s competitiveness which will result from a transfer of regulatory powers to Brussels. In particular, can he confirm that the Government would be able to prevent the enactment of some of the more protectionist features of this ill drafted directive, such as those prohibiting delegation of portfolio management outside the European Union and requiring private equity funds and investment trusts to appoint UCITS-style depositories, which is wholly unnecessary and alien to our British way of doing things?

My Lords, the draft directive was produced without the customary consultation. The equivalent UCITS directive, which applies to a smaller industry, had three rounds of consultation before it was published. As a result of the pace at which the draft directive has been produced there are, as I said, flaws. There are misunderstandings about the role of depositories and the calculation of leverage. Some provisions appear to conflict with the concept of subsidiarity. I am confident that we will be able to help improve the directive. To that end I am meeting people in the Commission and with other countries in the EU, including Sweden this weekend ahead of it taking up the presidency. We are also working very actively with the industry. We have had meetings with more than 100 managers of alternative investment funds and private equity to make sure that we understand their views and we are working with them to assemble arguments.

My Lords, important as this draft alternative investment fund managers directive is, does my noble friend recognise that there are other extremely important issues on the European Council agenda? In particular, does he welcome the very positive remarks made by the Irish Europe Minister, Dick Roche, on the radio this morning looking forward to a successful outcome of the negotiations concerning the Lisbon treaty, thus enabling it to be ratified in all member states and to come into force before the Barroso Commission goes out of office, which will be of major benefit to all the peoples of Europe?

My Lords, I regret that I did not hear the radio interview. I was taking note of the preceding question—I was walking to work while the interview was being broadcast. However, I take note of my noble friend’s comments and the encouraging sentiments that he expresses.

My Lords, has the Minister read the new book by Marta Andreasen, the former chief accountant of the European Union, which reveals that accrual accounting and double-entry book-keeping remain strangers in that land? Do the Government not agree that the British people will become even more angry with their political class if they learn that even a part of our financial industries has been taken over by the Eurocrats?

My Lords, the noble Lord’s views on these matters are well known. We are seeking, as we already have with other directives, to strike the right balance between the benefits to UK investors and the companies in which these funds invest of enhanced regulation and supervision while not in any way conflicting with the concept of national responsibility for supervision. Indeed, the Prime Minister will make that point forcefully at the European Council meetings in Brussels today and tomorrow.

My Lords, perhaps we might revert to the Question on the Order Paper, eccentric though that appears. Is it not the case that the Minister can be a great deal more robust than he has been so far in these exchanges? Not only is the context for this particular industry global, not European—it is global co-operation which is required—but it is an industry where, unusually, the United Kingdom is not merely larger than any other; in this particular sector, it is larger than all the others put together. Therefore, it would be wholly wrong for us to agree to any European directive on this matter that we are not satisfied is 100 per cent right.

My Lords, I would not wish noble Lords to believe that I am not being robust on these matters. I recognise the importance of the UK as a centre for hedge fund management; over 80 per cent of hedge funds in Europe are managed from the UK. We are also the regional centre for private equity management, and I am working to make sure that the views of the industry are well understood. I believe that our knowledge and awareness of the issues and our capacity to provide detailed understanding to address some of the flaws that lie in the directive will lead to a positive outcome. I can best do that through constructive engagement with our colleagues in Europe, rather than being unnecessarily confrontational.

My Lords, there appears to be growing confusion about the differences of view between the Chancellor of the Exchequer and the Governor of the Bank of England on banking regulation. The governor said yesterday, in his Mansion House speech,

“If some banks are … too big to fail, then … they are too big”.

Does the Chancellor agree?

My Lords, the issue of the banking community’s size in respect of the domestic economy, and then the size of individual banks, is one to which we are giving considerable attention. We shall be producing a White Paper on the future of financial markets in early July, which will address that issue. In the Chancellor of the Exchequer’s Mansion House speech last night, however—which I thought was, truly, an exceptionally good speech by the Chancellor on the steps that he has taken to protect our economy—he set out his own broad views, which are that the critical factors to protect us against bank failure are good governance, good risk control, appropriate regulation and constant supervision. In that context, I am sure that diversity in the scale of our banks can still be a source of strength for our economy.