Progress in battle over EU hedge fund law

By Huw Jones

LONDON (Reuters) - Britain was "gaining traction" in persuading its EU partners to rein in a draft law regulating hedge funds but the industry should also get its customers out on the campaign trail, a government minister said on Tuesday.

The European Union's executive European Commission has proposed a law to force managers of hedge funds, private equity groups and other alternative funds to register and disclose information to regulators, such as levels of leverage.

It is part of wider, global efforts to shine a spotlight on all parts of the financial market to improve transparency and spot risks more quickly.

Although Britain thinks parts of the draft law go beyond what is required to make the sector safer, other EU heavyweights like France want it toughened up.

Treasury Minister Paul Myners said the draft law offered many benefits, such as creating a single market in alternative investments that Britain could exploit as the bloc's biggest financial centre.

Hedge funds posed potential risks to the wider financial system that also needed monitoring, he added.

But parts of the draft law were too simplistic, ill thought out with elements such as a cap on leverage a step too far and would push the industry outside the EU to Geneva, Singapore or the Middle East if unchanged, Myners added.

"It would drive hedge funds out of Europe," Paul Myners, told a House of Lords committee.