European and US firms fear new safety rules for derivatives will cost them billions. But regulators may compromise

BRUSSELS – There are increasing hopes that a compromise document prepared for a key mid-November meeting of officials from EU member governments could pave the way for a deal over controversial hedge fund regulations. The bitterly fought regulations, proposed in the Alternative Investment Fund Managers (AIFM) Directive issued in April, have proved the most divisive that the European Commission, executive arm of the EU, has proposed in recent years.

Transforming three of the EU’s lesser known financial sector advisory bodies, into the lynch-pin Authorities of Europe’s proposed new system of financial supervision, is set to be the dominant institutional theme of 2010. The three new European Supervisory Authorities (ESAs) are being established as part of the European Commission’s ambitious proposals to re-shape Europe’s supervisory architecture along the lines proposed in February by the High-Level Group chaired by former head of the Bank of France, Jacques de Larosière.

LONDON – There is no case for increasing the 5% of securitised credit products that must be retained by originators or sponsors when such products are sold to European investors. That is the advice provided at the end of October to the European Commission by bank supervisors.

LONDON – In a powerful defence of Britain’s Financial Services Authority, against those who would dismantle it or merge parts of it with the Bank of England, Hector Sants, the regulator’s chief executive said in early November that such moves would invite a fragmentation of approaches and a could lead to a ‘turf war’ between the different bodies involved.

WASHINGTON – The US Federal Reserve Board appointed Patrick Parkinson director of the Fed’s banking supervision and regulation division with immediate effect from October 20.

BASEL – Amid continuing signs of countries going their own way on the highly charged question of bankers’ pay and rewards, the Financial Stability Board (FSB) is carrying out a review of actions taken by firms and national authorities to implement the FSB’s own principles on pay.

SINGAPORE – Asia’s challenge in the wake of the global financial crisis lies less in more stringent regulation and more in the development of innovative financial services to complement economic development, one of the region’s top central bankers said in late October.

KUALA LUMPUR – Cooperation among Asia’s financial regulators and central banks needs to be strengthened, according to Zeti Akhtar Aziz, governor of the Central Bank of Malaysia. In a speech in October, the governor said that strengthened cooperation is needed to manage the risks that could arise from the otherwise desirable greater financial integration that’s needed in the region. In her remarks, Zeti said the savings rate in most Asian economies is around 30% of gross national product.

WASHINGTON -- The financial regulatory reform proposals release by the US Senate require hedge fund advisers to become regulated for the first time, as part of its aim to fill regulatory gaps. Unlike the differences in banking regulation, the Senate’s hedge fund proposals are broadly similar to those of the House of Representatives and the Administration.