On Both Side of the Atlantic, Battle Lines Harden Over Financial Regulation

While the scope of financial regulation varies from Europe to America, electoral politics seem likely to shape eventual market changes after the Great Recession.

(March 23, 2010) – In both the United States and United Kingdom, battle lines are hardening over proposals that would see increased regulation of financial markets.

In the United States, following the signing into law of health care reform – the result of a year-long process that many conservatives claim was poorly constructed and stretched parliamentary rules – Republican Party (GOP) leaders are ready to fight against financial regulatory reform, Reuters is reporting. According to the report, the GOP plans to put forth more than 300 amendments to legislation that Senate Banking Committee Chairman Christopher Dodd, a Democrat of Connecticut, proposed on March 15 following negotiations with fellow committee members in recent months.

More specifically, the targets of the amendments – seen by Democrats as an attempt to delay passage, or even cause its failure – are the creation of a financial systemic risk monitor and a fund, paid into by banks, that would cover any potential liquidation of financial institutions. According to Reuters, Dodd hopes to have a vote on the legislation by the end of the week, but such amendments would likely derail such a timeline. While Democrats likely have enough votes to pass reform on a simple up-or-down vote, they do not possess the 60 votes needed to break a filibuster.

On the other side of the Atlantic, disagreements over hedge fund regulation are coming to a head as both the Labour and Conservative Parties express reservations about proposed European Union (EU) laws that would see increased oversight of EU-based hedge and private equity funds – and compliance by foreign firms that hoped to receive capital from within the EU. Prime Minister Gordon Brown, in the run up to a May election, has “intervened to stop EU ministers signing off on a draft law curbing pay and borrowing at hedge funds and private equity firms until after elections,” according to Reuters. The Conservative Party, pegged by some to lead a minority government after the May runoff, is taking an even tougher stance. “What’s on the table — to make it difficult for European investors to invest in non-EU hedge funds — is protectionism,” said Syed Kamall, a Conservative parliamentarian at the European Union headquarters in Belgium, according to Reuters. “They (a Conservative government) would make it clear that it isn’t acceptable.”

At stake in the hedge fund fight, some believe, is London’s preeminence in European finance and the ability of European asset owners to access best-in-class alternative funds. Firms wishing to avoid such oversight would move to other domiciles, the argument goes, and European pension funds, endowments, and foundations hoping to access such funds would be barred from doing so because of their lack of compliance with European regulations.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>