US Treasury Secretary Timothy Geithner wrote a letter to four EU finance ministers on 5 April reiterating his concerns about the controversial Directive on Alternative Investment Fund Managers. Geithner sent the letter soon after an intervention from UK Prime Minister Gordon Brown reportedly delayed a vote on the directive at a mid-March meeting of EU ministers.
Geithner began by applauding the decision to “spend more time considering” the directive, but quickly moved to concerns with the directive’s third-country rules, which would forbid fund managers from non-EU countries from marketing within the EU unless they can prove they are subject to regulatory regimes in their home countries that are “equivalent” to the EU’s.
Currently, many major EU trading partners, including the US, Russia, China, India and Brazil, do not meet this standard, and therefore would be denied a “passport” to market within the EU.
“It is my hope that this provision will be revised to provide non-EU funds, fund managers and global custodians the same access as their EU counterparts and promote a single market,” Geithner said.
He made similar statements earlier this year in a letter to Michel Barnier, the European commissioner for the internal market. But in his letter to Brown, Geithner went further and described how the US financial regulatory system is likely to evolve in the near future to become as rigorous as the EU’s system.
The US has not been granted a passport because of its looser liquidity and leverage rules for fund managers.
But Geithner noted that President Barack Obama has proposed – and the US House of Representatives has passed – legislation that would require fund managers whose assets exceed a modest threshold to register with the Securities and Exchange Commission.
He also said that firms deemed to be systemically important will be subject to “heightened supervisory scrutiny and prudential standards, including higher capital, along with stricter liquidity and leverage rules”.
He pointed out that the US’s regulatory regime will treat all fund managers, whether domestic or foreign, equally.