CITY MINISTER Paul Myners has vowed to fight "tooth and nail" to revise a directive from Brussels that would give the European Union the power to set limits on how much hedge funds are allowed to borrow.
The draft legislation has triggered panic in the industry and prompted several senior figures to threaten to leave London unless the legislation is radically altered.
Myners will meet Sweden's deputy finance minister in 10 days to seek changes to the directive, as Sweden prepares to take over the EU chair from Czech Republic on July 1.
The European Commission unveiled the draft plans in April, saying that funds with "systematically high" leverage would be required to make additional disclosures on their use and source of borrowing and give Brussels and national authorities power to set leverage levels.
Myners said the hedge fund industry had come through the financial crisis with relatively little stress, so any regulatory response would have to be "proportionate".
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"We think there is a job of work to be done here and we will fight tooth and nail to make the necessary improvements," he said this weekend. However, Myners also claimed large parts of the directive would actually be good for the industry and posed no threat at all.
"It is wholly unhelpful of hedge funds - which have made lots of money in London - to say at the first sign of regulation from Europe that they intend to up-sticks and go," he said, adding that they must behave in a "dignified and responsive way".
London's largest hedge funds are devising a coordinated lobbying campaign to fight the EU directive. One senior manager said: "Mobilisation has started. People have gone beyond the point of throwing their hands in the air. They are getting on with it and no stone will be left unturned."
Alistair Darling, the chancellor, is expected to put the overhaul of financial regulation at the top of the agenda this week in his address at the annual Mansion House dinner.
The speech could hint at the future balance of power within the tripartite authorities of the Treasury, the Bank of England and the Financial Services Authority.