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US must wait for EU hedge fund "passports": EU watchdog

[LONDON] Hedge funds from Guernsey, Jersey and Switzerland should be allowed to serve investors across the 28 country European Union, the bloc's securities watchdog said on Thursday.

The European Securities and Markets Authority (Esma) also said it has not yet reached a view on whether hedge funds and other alternative investment funds from the United States should be given a "passport".

The lack of advice is the latest friction between the EU and United States over recognising each other's financial rules. A longstanding spat over derivatives regulation has yet to be resolved.

A passport would mean a non-EU fund, once authorised, would be allowed to market itself across the EU and not have to seek permission from each EU country it wants to operate in, a more costly undertaking.

Authorised EU hedge funds get a passport automatically.

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The United States, like EU member Britain, is among the world's top hedge fund centres but the Esma said it could not reach a decision on whether US, Singaporean or Hong Kong funds should be granted passports.

Esma must advise the European Commission, which takes the final decision, on granting passports under a new EU law known as AIFMD. "The advice concludes that no obstacles exist to the extension of the passport to Guernsey and Jersey, while Switzerland will remove any remaining obstacles with the enactment of pending legislation," Esma said in a statement. "No definitive view has been reached on the other three jurisdictions due to concerns related to competition, regulatory issues and a lack of sufficient evidence to properly assess the relevant criteria." Esma will finalise its assessments for Hong Kong, the United States and Singapore as soon as "practicable" - it had already delayed Thursday's announcement.

Meanwhile, it suggests that the European Commission, along with the European Parliament and EU states who will be consulted on the final decision, should wait until Esma has given the green light to several non-EU states first.

This was to "avoid any adverse market impact that a decision to extend the passport to only a few non-EU countries might have", Esma said.


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