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EU Nears Imposing Stricter Rules on Investment Managers

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Per a Reuters report, European Union (“EU”) governments have agreed that foreign-based investment managers that want to operate in the eurozone will need to establish branches inside the bloc. This rule is likely to impact the London-based financial firms.

About 3,000 European investment firms that are based in Britain such as, Goldman Sachs (GS - Free Report) and JPMorgan JPM, will be affected by the move.

Further, the regulators revealed that stricter liquidity and capital requirements would have a greater impact on a larger number of firms across the region than was expected.

Per the new draft rules, investment management companies will be subject to supervision by the European Central Bank, just like other large banks. Also, the companies will be required to distribute their assets both inside and outside of the eurozone, which is expected to increase expenses.

Per the article, EU states have agreed to apply strictest capital and liquidity rules to firms with assets above €30 billion. Thus, investment firms with assets of €15 billion or more would face same requirements as large banks, while firms with assets of between €5 billion and €15 billion will face lighter regulations unless their activities are seen to pose risks to financial stability.

However, the approval of EU parliament is yet to be received, for this to become a law.

Per Reuters, EU lawmakers have already given their backing to a legislative text that is very similar to the compromise reached by EU states. The new rules would be applied only after a five-year transitional period, per the EU statement.

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