France has warned that Europe risks opening the door to a ??Trojan Horse? of offshore hedge funds if it adopts plans circulating in Brussels to regulate the industry.
Christine Lagarde, French finance minister, on Monday criticised legislation on regulation being prepared by the European Commission, saying it did not go far enough.
Paris has objected to the Commission??s proposal that Brussels should be able to hand out ??passports? to trade in Europe to offshore funds from territories that have reciprocal agreements.
??The Commission wants to create a system of mutual recognition,? Ms Lagarde said in an interview with the French daily Le Figaro. ??This is the kind of system that will open the door to a fund from the Cayman Islands that has never been regulated by Europe. The danger is that this could become the Trojan Horse of offshore funds.?
The proposals in Brussels are seen by France as the bare minimum. Brussels?? ability to vet the funds from offshore jurisdictions was doubtful, said one French official. ??We are not sure that the agreements will be sufficiently framed to allow for good control,? he said. France had proposed that the system of mutual recognition be barred to offshore funds, he said.
