Britain ready to compromise on EU hedge fund rules

BRITAIN is preparing concessions to Germany and France that will pave the way for European finance ministers to agree draft rules on hedge funds as soon as next week, sources with knowledge of the matter said.

European leaders including German Chancellor Angela Merkel and French President Nicolas Sarkozy have accused hedge funds and others of exacerbating the problems of Greece, the region's most troubled economy, by betting on its debt.

European Union ambassadors - in talks about new rules to curb hedge-fund pay and borrowing - are now edging close to winning the backing of Britain for new regulations, diplomats told Reuters ahead of a key meeting today. "In the spirit of getting an agreement, they would be prepared to look at issues such as remuneration and leverage," one said.

A deal would not include a ban or other limits on the short-selling of credit default swaps, the name given to insurance against an unpaid government bond. Many say trading in such instruments has compounded Greece's difficulties.

It would, however, send a signal that the EU is acting decisively against an opaque industry amid a prolonged debate over whether its member countries should give Greece financial support. "There is increasing convergence behind the ... compromise," EU officials wrote in an internal report about progress towards a deal.

The Spanish presidency of the EU "has indicated that the council (of finance ministers) should confirm an agreement ... on March 16."

Britain, home to nearly all of Europe's hedge funds, is seeking assurances that foreign players would not be forced into exile by additional regulation. The advance towards a compromise has worried many in Britain's financial centre and next Monday, the City of London's lord mayor Nick Anstee and policy chief Stuart Fraser will visit Brussels to meet EU financial markets chief Michel Barnier.

One source with knowledge of their plans said they would voice concerns among banks and others that the City of London will be overregulated. "It does seem as if (the British government) are going to do a compromise," he said. "I don't think Britain has any friends."

Reuters