Alistair Darling and UK Treasury under Pressure over pan-EU Super Regulators

Gathering storm clouds continue to form with the EU promulgation of the hedge fund industry. Alistair Darling, the UK Treasury Minister is under pressure from both sides of the divide – the regulated and the pro-regulation EU legislators with an axe to grind.

The recent G8 summit resulted in a consensus from finance ministers for a global regulatory framework in response to, “the breadth and intensity of the prolonged downturn have revealed fundamental weaknesses of the global economic and financial systems".

Germany and France are leading the charge with calls to form an international regulator based on the Lecce framework to compel greater disclosure by hedge funds and banks. Nevertheless, there are deep splits between the G8 members over how to proceed and the recent communiqué made no mention of stress tests which has caused such a recent furor in London with the FSA test results (or fudge) of major UK banks.

This week will see testing of a different sort in Brussels as EU ministers meet up, once more trying to find some common ground for an agreement while managers and firms in London have been lobbying Darling hard these last few days. The EU proposals, if accepted, will have two further bodies created; the European Systemic Rick Council with an over-brief on financial risk in the market and chaired by the European central bank, and a further body for day-to-day regulation of banks and markets with authority over EU member states.

The new “Super Regulators” must be viewed with more than a modicum of suspicion; France and Germany may have sizeable financial markets but they are not world leaders in the global arena while London is, so what is their motivation? The issue is viewed as sidelining the UK by its EU sister-states, especially in the regulatory arena. Globally, EU regulators do not carry that much respect, but under the EU umbrella, the UK is out-voted which leaves the Square Mile between the proverbial rock and hard place and looking for a way forward or a way out.