Page last updated at 11:29 GMT, Thursday, 9 July 2009 12:29 UK

Fund plans 'could strangle' City

Boris Johnson
Boris Johnson objects to plans to regulate hedge funds

The Mayor of London, Boris Johnson, has warned that EU plans to regulate hedge funds could "strangle" the City as an international financial centre.

Hedge funds use sophisticated, complex investing strategies to make returns, even when markets are falling.

Under the EU plans, hedge funds would be required to be more open, and their ability to borrow would be limited.

The Mayor is concerned that if these rules are adopted, hedge funds will be driven to relocate outside the EU.

London is the current home of 80% of Europe's hedge funds, but they could be tempted to move to Switzerland and the US.

Hedge funds have been blamed for contributing to the financial crisis and threatening future financial stability.

FROM THE TODAY PROGRAMME

But Mr Johnson said on BBC Radio 4 Today programme:

"It is a weird thing that under the fog and confusion of war, the Commission seems to be proceeding to attack something in which London simply excels and was not responsible for the recent catastrophes.

"I think it is very, very dangerous to the City. It is very important that we defend an industry that generates huge sums of tax for this country."

But the European Commission says its proposals are necessary "to overcome gaps and inconsistencies in existing regulatory frameworks at national level" and that they will "improve the macro-prudential oversight of the sector and [allow governments] to take coordinated action as necessary to ensure the proper functioning of financial markets."

EU Row

The British government has also expressed its alarm over the plans.

Canary Wharf
London's dominance as a financial centre could be under threat

City Minister Lord Myners has accused some European countries of playing politics with their plans to impose tighter regulations on the alternative asset management industry.

He has indicated that he plans to spend the summer lobbying his EU counterparts.

The Alternative Investment Management Association, which represents hedge funds, says that UK firms account for about a quarter of the global hedge fund industry and that British hedge Funds currently have £250bn ($400bn) of assets under management.

The industry claims that the hedge fund industry contributes around £10bn in taxation to the Exchequer.

However, those hedge funds which pose a "systemic risk" to the financial system will be subject to tougher disclosure requirements by the UK's Financial Services Authority, under proposals for financial regulation announced by the Chancellor on Wednesday.



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