A deal on pan-European rules for hedge funds and private equity funds moved closer after France dropped its outright opposition to draft legislation that would give non-EU fund managers pan-EU marketing rights, the so called passport rule.

French officials now say that they are prepared to accept the principle of a passport for third-country funds, subject to strict conditions. In particular, Paris insists that it should be the new European Securities and Markets Authority which issues a passport to a third-country fund and then supervises that fund.

The French move came just 24 hours after Tim Geithner, US Treasury secretary, sent a letter to Christine Lagarde, French finance minister, protesting at France�??s hostility to a passport for third-country fund managers.

�??A proposal that limits or delays the access of third country firms to a passport �?? while granting EU domiciled managers and funds access to the EU market �?? would be discriminatory and contrary to G20 commitments,�?� he warned.

Under its concession, France would be prepared to support a compromise where the current rules remain in place for years. Officials envisage that, in perhaps 2014-16, ESMA would recommend introducing a passport regime and Brussels would pass regulations giving the authority the powers to run it.