EU regulator says hedge fund plans needs rethink

BASEL, Switzerland (Reuters) - A draft European Union law to regulate hedge funds and private equity managers is unworkable and needs a rethink, a top EU regulator said on Thursday.

"I hope they will come forward with something more balanced. It really doesn't work. They have pooled everything together, the scope is absolutely too wide, everything is caught," Eddy Wymeersch, chairman of the Committee of European Securities Regulators (CESR) told Reuters.

CESR is made up of the 27 national markets watchdogs in the EU and will play a key role in implementing the new rules.

The EU's executive European Commission has proposed a draft law to regulate managers of alternative investment funds, requiring them to register, submit data, limit leverage and, for non-EU managers, meet certain requirements to offer their funds in the bloc.

It has drawn sharp criticism from Britain, the EU's top hedge fund and private equity centre, who says the rules are "protectionist" with a damaging "one size fits all" approach.

The draft law was put forward by a Commission under intense political pressure after some policymakers accused hedge funds of amplifying the crisis by short selling bank stocks.

"The way for instance, of pulling together hedge funds and private equity is very difficult. It has to be, in my view, rethought but I think they won't be willing at the Council (member state) level to start from zero," Wymeersch said.

"So we will have to sew on some bits and pieces here and there and it will not necessarily be very nice," Wymeersch said.

The European Parliament and EU states have the final say on the draft law.

It has sparked concern in third countries with U.S. regulators accusing the 27-nation bloc of trying to impose its supervisory model on others.

The Alternative Investment Management Association (AIMA), a global hedge fund association, said on Thursday there was broad consensus among European policymakers that the draft law needs a lot of work.

"The question is what will replace what is currently in the draft directive," AIMA CEO Andrew Baker said in a statement.

"We think the directive should focus on the three key issues of registration and authorisation, reporting of systemically relevant data, and a workable passport," Baker said.

(Reporting by Huw Jones, editing by Toby Chopra)