Geithner Urges Europe to Revise Hedge-Fund Rule Plan (Update1)

April 7 (Bloomberg) -- Treasury Secretary Timothy F. Geithner said European policy makers shouldn’t block U.S. investment funds from their markets and praised recent delays to a planned set of hedge-fund regulations.

“As you consider how to design this important set of reforms, I hope you will keep in mind our shared commitment to create regulatory reform that does not discriminate against foreign firms,” Geithner said in a letter to four European finance ministers released today by the U.S. Treasury.

Europe’s Alternative Investment Fund Management Directive, proposed a year ago, will limit hedge funds’ borrowing, require registration of funds with more than 100 million euros ($134 million) under management and impose limits on pay. One clause would prevent European funds from investing in pools based outside the region.

The letter follows Geithner’s warning last month to European Union financial services commissioner Michel Barnier that the rules would discriminate against U.S. funds. EU finance ministers delayed plans to discuss the planned regulations last month amid concerns that the plans could spark a trade war.

The rules “would discriminate against third-country funds and fund managers by denying them the opportunity to access the EU single market,” because only European firms would be eligible for a “passport,” Geithner said. “It is my hope that this provision will be revised” to grant access to non-European funds, fund managers and custodians, he said.

Geithner sent the letter to U.K. Chancellor of the Exchequer Alistair Darling, French Finance Minister Christine Lagarde, German Finance Minister Wolfgang Schaeuble and Spanish Finance Minister Elena Salgado Mendez. In the letter, he said the U.S. is working on its own proposals to strengthen the regulation of hedge funds, in keeping with international agreements made by Group of 20 nations.