Tighter Rules for Foreign Hedge Funds Advance in Europe

That reprieve allowed Gordon Brown, the former British prime minister, to campaign during the general election this month on promises to continue fighting for hedge fund rules that suited Britain.

But countries like Germany, France and Spain have continued to back tougher rules on foreign funds.

The proposal agreed to on Tuesday would impose transparency standards on hedge funds and managers based outside the European Union by requiring them to win permission from individual member countries, and it would set restrictions on managers’ bonuses and on the use of debt.

But EU governments and lawmakers still need to reach agreement on a single bill.

British officials would like rules that ideally allow hedge funds based in countries with roughly equivalent standards of financial regulation to be given automatic permission to operate in Europe.

In reality, Britain probably will have to settle for a system that puts somewhat higher thresholds on foreign hedge funds and gives a European agency — probably the European Commission — the responsibility to decide which funds from which countries are eligible to do business across the bloc.

Barnier, the commissioner who will continue to have a role in helping to draft the bill, suggested Monday that he favored a version of the legislation under consideration by the European Parliament and currently favored by British officials.

“I assure you I am still in favor of equal treatment between fund managers,” Barnier said at a news conference in Brussels.

“That’s why we put forward this idea of a passport,” said Barnier, referring to one version of accreditation for managers to do business across Europe on the same basis as funds based in the Union.

The Economic and Monetary Affairs Committee of the European Parliament, meeting in Strasbourg, agreed late on Monday on its version of the legislation, which includes some of the concessions sought by Britain, including the passport provision.

A final agreement could take some months. Barnier said he would seek a “dynamic compromise,” and he emphasized that his views on how to regulate hedge funds were far closer to those of the parliamentary committee than to those of governments like Spain’s.