The European Union’s executive proposed a draft law that would introduce mandatory registration of hedge fund managers and oblige private equity firms to disclose data to regulators.

Britain, the EU’s main hedge fund centre, already has registration and disclosure requirements but all the world’s leading economies have agreed to introduce registration and disclosure requirements.

The draft law covers also covers managers of other so-called alternative investment funds managers in a €2trn EU sector that also includes commodity funds, real estate funds and infrastructure funds.

Such funds are traditionally seen as risky and unsuitable for retail investors with access to many restricted to professional or institutional investors.

The move is part of global efforts to supervise all parts of the financial market to cut risk and restore investor confidence.

Hedge fund and private equity industry associations said the draft law was too draconian while a top socialist in the European Parliament, a body that has the final say with EU states on the rules, said the proposal was full of holes.

The following are key elements of the draft law:

Hedge funds

  • applies to all hedge fund managers based in the EU overseeing portfolios worth more than 100 million euros.
  • a manager must be authorised and subject to ongoing supervision to operate in the EU;
  • most funds are based offshore and in a “stick and carrot approach”, non-EU domiciled funds can be sold across the EU three years after the law takes effect but on condition they meet tough regulatory standards;
  • existing national rules such as those in Britain that allow hedge funds from non-EU states to be marketed locally won’t be affected;
  • managers must make sure key service providers, including depositaries and administrators, are subject to robust regulatory standards;

Private equity

  • disclosure requirements apply to private equity groups with assets over 500 million euros;
  • firms will have to disclose details about the company’s performance to stakeholders.

Reporting by Huw Jones, editing by David Cowell