BRUSSELS – On Tuesday after representatives from the European Parliament, the European Union clinched a deal on hedge funds supervision, as the European Commission and member states reached final agreement on the issue.

The European Parliament said in a statement, “Over a year in the making, this often-controversial law will impose registration, reporting and initial capital requirements on a financial industry sector which until now has been subject only to “light touch” regulation”. The statement said, “Alternative investment funds (AIF), notably hedge funds and private equity, will henceforth be subject to more substantial regulatory oversight, so as to enhance investor protection and financial stability, both key priorities for Parliament all throughout the negotiations”.

At their monthly meeting last week, the European Parliament broadly endorsed the agreement reached by EU finance ministers. The Paris-based European Securities and Markets Authority, under the agreement, a new EU financial supervision authority to be in work, form next year. In this regard they would issue passports to non-EU hedge funds and allow them to operate and function in the whole European Union. The supervision of hedge funds outside the EU has been a bone of contention between some member states and the parliament.

Paris stood for a strict control of allowing foreign funds to operate throughout the EU, as London, which hosts 80 percent of Europe’s hedge fund industry, wanted to ensure that hedge funds, based outside the EU are managed in the City of London and it should not be locked out of European markets.

A practice used by private equity funds to make quick profit after taking over a company, the European Parliament also proposed to curb asset-stripping, besides agreement on the supervision of hedge funds outside the EU. On November 11th the agreed text will now be put to a vote of approval at the parliament’s plenary session. EU member states will have two years to translate the rules into their national laws, after the directive enter into force.