The UK and the Czech Republic are likely to be left behind when EU finance ministers sign off on draft rules on alternative investment funds at a meeting on 18 May. The Spanish presidency of the EU said last week that it would go ahead with the support of only 25 of the 27 countries in order to secure what is called a «general approach», giving the Council a mandate for talks with the European Parliament. The Spanish presidency’s draft compromise has caused outrage in the US and Britain for including a controversial clause that forces non-EU managers to comply with EU-style rules and register in every member state in which they want to do business.

The decision will come the day after a key vote on the Commission’s draft directive in Parliament’s Economic and Monetary Affairs Committee (ECON). The committee’s rapporteur, French EPP deputy Jean-Paul Gauzès, has been furiously working behind the scenes to forge a consensus, most recently suggesting foreign managers have access to the entire EU market (the so-called passport) once a set of strict conditions - including supervisory standards, tax and anti-money laundering agreements - are met in their home countries.

The draft directive was put on ice ahead of an Ecofin meeting in March after the then UK premier Gordon Brown intervened. However, the UK’s new Chancellor of the Exchequer George Osborne is unlikely to be able to stand up to pressure from a majority of his EU counterparts willing to push the draft through as it stands. «Landing such an early blow on a matter of UK national interest certainly won’t help this government’s relationship with the EU,» said Mats Persson, director of Eurosceptic think-tank Open Europe.

The EU’s Internal Market Commissioner Michel Barnier on 17 May gave Gauzès a welcome boost, saying he is «closer» to the rapporteur’s position than that of the Spanish presidency. «I’m still in favour of equal treatment between fund managers once they respect - to the letter - the conditions of community legislation,» he told reporters. «I remain attached [...] to anything contributing to financial integration in the internal market.»

The Alternative Investment Management Association, meanwhile, has hit out at the Spanish compromise, saying that it will stymie investment across the bloc. «Closing Europe’s borders would send all the wrong signals out to the rest of the world about Europe’s place both as a global centre for financial services and as a destination for international investment,» said AIMA CEO Andrew Baker. «It would significantly affect international trade and capital flows and result in protectionist consequences. And it would impact ordinary citizens and small businesses across the EU and emerging markets internationally.»

The private equity industry has major concerns about the treatment of foreign managers but is also worried about the impact of reporting and capital requirements on venture capital-backed SMEs and says the draft fails to properly differentiate between different types of funds.