Britain's new government is to admit defeat on proposed European Union rules for hedge funds, The Sunday Times reported. Sources close to Chancellor of the Exchequer George Osborne told the newspaper that although the government still disagreed with large parts of the directive, the process was too far advanced to be stopped.
"We know we have to pick our battles and this was one we had already lost," one source said. Osborne called Elena Salgado, finance minister of Spain, which holds the rotating EU presidency, on Friday to discuss Britain's position, the report said.
Britain initially called for a delay to a crunch meeting in Brussels on Tuesday because the Conservative-Liberal Democrat coalition government had only just been formed, but the appeal was rejected. Osborne told Salgado of Britain's fears about the directive but it was clear, sources told the paper, that the overwhelming majority of European states supported the new regulations.
Some 80 percent of the global hedge fund industry is based in London, but Britain now looks set to be forced to accept EU rules requiring greater transparency from both hedge funds and private equity groups.
Hedge funds, highly speculative investment tools, are widely blamed for having at least contributed to the global financial crisis.
British hedge fund managers argue that the new directive will cost millions of pounds in new regulation fees and could lead to an exodus from London to Switzerland and the Middle East. The proposed EU directive has also caused concern in the United States, with US Treasury Secretary Tim Geithner warning in March that it could trigger a major dispute by unfairly locking US funds out of European markets.