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European Union (EU) finance ministers on Tuesday agreed on tough regulation on hedge funds despite differences among the 27 member states of the bloc.

EU's Commissioner for Economic and Monetary Affairs Olli Rehn, EU rotating presidency Spanish Finance Minister Elena Salgado and EU's Commissioner for Internal Market and Services Michel Barnier (L to R) attend a press conference after EU's financial ministers' meeting in Brussels, capital of Belgium, 18 may 2010.

After a roundtable debate, the finance ministers concluded a general approach on regulating alternative investment fund managers (AIFM), which will also be on the agenda of the G20 summit to be held in Canada in June to find a way of overseeing and supervising such funds.

A statement released after the meeting said that the draft directive was aimed at "establishing a harmonized framework" for monitoring and supervising the risks that alternative investment funds pose.

In the statement, the finance ministers called for a strict supervision on the fund managers and sought new regulation of the hedge funds which are not registered within the EU.

As to the hedge funds based within the EU, the ministers said that approval from one member state will enable them to trade throughout the EU, while the funds based outside the EU will need to seek permission from member states separately.

Britain has been reluctant to tighten rules concerning hedge funds, especially concerning those based outside the EU, fearing that will hurt its status as an important financial center. Britain now is home to 80 percent of the hedge funds operating in Europe.

"I should make it clear that we are not regulating the funds, we are regulating the fund managers," Spanish Finance Minister Elena Salgado told a press conference after the meeting.

To address the concerns of Britain, the ministers said in the statement: "The presidency will negotiate on the basis of a Council general approach agreed today; it took note of remaining concerns expressed by delegations, for instance with respect to third country rules."

Salgado said the European Council will start formal negotiations with the European Parliament afterwards and a final legal framework is to be announced jointly by these two legislation pillars of the European Union.

The Economic and Monetary Affairs Committee of the European Parliament on Monday adopted its position on the draft EU law regulating managers of alternative investment funds, including hedge funds.

"This position will ensure better transparency and better investor protection while at the same time being on the side of the financial industry when it is working for the real economy," rapporteur Jean-Paul Gauzes said.

Apart from the issue of regulation on funds, European Commissioner for Internal Market and Services Michel Barnier also emphasized the needs to regulate the derivatives market and banks.

"There is one thing very urgent and important, which is regulating the derivatives. It should be concluded before this end of summer," the EU top financial official said.

"There is also a need to enhance bank regulation on which we will cooperate with the U.S. and find some global measures," he added.

VietNamNet/Xinhuanet