Johnson warns over EU finance market curbs

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The Independent Online

EU plans for tight regulations on hedge funds and private equity firms will be "enormously damaging" to London's reputation as an international financial capital, Mayor Boris Johnson warned today.

He took the fight against the plans to Brussels, where he will hold talks later today with Europe's Single Market Commissioner Charlie McCreevy, whose brief includes regulating financial services.

The meeting follows warnings from some of Britain's biggest hedge fund companies that they will have to leave the country unless the draft directive of "Alternative Investment Fund Management" is drastically revised before becoming law.

The Mayor insisted today that the rules would not only hit London, but the rest of Europe too, by giving a huge competitive boost to financial centres beyond Europe, such as New York, Singapore, Hong Kong and Geneva.

The rules would bring the "alternative investment market" - hedge funds, private equity and venture capital - into the regulatory net in the wake of the economic crisis, with new powers to intervene in the sector to ensure market stability.

But Mr Johnson will insist in talks with Mr McCreevy and MEPs today that the sector was not responsible for economic collapse and is being unfairly targeted.

"In London alone, the private equity and venture capital industry directly employs around 7,000 people and we estimate a further 35,000 people are employed directly and indirectly by hedge fund managers."

He went on: "I have always said I'm in favour of proportionate regulation, where necessary, and that this industry must learn from the mistakes of the past and work to put its reputation beyond dispute.

"However, I strongly feel that this draft directive should be amended to ensure that we do not cut off a vital supply of investment funding at a time when the economy needs it most."

Mr Johnson added: "The directive, as it is currently drafted, will have enormously damaging consequences for London, for the UK, and for Europe too.

"There is no suggestion or evidence that investment funds were in any way to blame for the financial crisis and it is difficult to see the justification for this level of regulation. This is the message I bring with me today from London and I'm confident that we'll get a fair hearing in Brussels."

If the rules go ahead unchanged, he claimed, the UK would be denied billions of pounds in tax revenues raised by the sector, which help pay for infrastructure improvements and vital public services across the UK.

In addition, London's position as the main European marketplace for hedge funds, private equity and venture capital, would be seriously undermined. About 80% of European hedge funds and 60% of European private equity funds are located in London.

Mr Johnson is also lobbying MEPs, including members of the European Parliament's Economic and Monetary Affairs Committee.

One of its Labour members, Peter Skinner, commented: "Boris Johnson's visit illustrates the isolation of the Conservative Party on critical issues that are driven by the EU. There will be regulation on hedge funds and we need to make sure it will be the right regulation which will protect the interests of the City of London.

"Influencing the EU does not come from one visit; it comes from sustained relationship building and a willingness to engage in the EU."

Mr Skinner added: "Whilst I welcome his visit as Major of London, he represents the type of Conservative view that jeopardises UK interests by not engaging with the EU and its member states."