Senator says U.S. may hit back over EU fund rules

Senator says U.S. may hit back over EU fund rules; Reuters

The United States should retaliate if a European Union proposal to curb access for U.S. fund managers to the European markets becomes law, a senior U.S. lawmaker says.

Planned EU limits on hedge funds are "protectionist rules that discriminate against U.S. firms and activities," Democratic Senator Charles Schumer of New York said in a letter to U.S Treasury Secretary Timothy Geithner, dated Tuesday.

The proposed law, backed by most EU members but facing opposition from the UK government, would make it difficult for European investors to invest in non-EU hedge funds and would curb non-EU money's access to the EU market.

Schumer said if the law is enacted he would propose legislation that would "prohibit funds that are not headquartered in the U.S. from marketing and raising money here and require all funds operating in the U.S. to use only U.S.-headquartered custodian banks."

He urged Geithner to work to ensure the proposed law will not discriminate against U.S. firms "just as EU-based funds and custodian banks currently have full access to our market."

In a letter sent on March 1, Geithner had complained to EU financial markets chief Michel Barnier about proposed rules to tighten control of hedge funds. The hedge fund industry believes Geithner's letter helped Britain stall the draft law.

Leaders from the Group of 20 agreed last year to move forward on an overhaul of financial regulations, but discussions have stalled amid worries about the need to protect still fragile economies.

Schumer's letter comes as global concerns about protectionism are increasing.

A World Trade Organization panel called on Tuesday on the European Union to end illegal subsidies to Airbus (EAD.PA).

Separately, the French and German governments urged U.S. authorities last week to "reject protectionist temptations" over a big U.S. military tanker deal that looks set to go to Boeing.