A draft EU law to regulate alternative fund managers has already been delayed by some EU member states after the UK rejected proposed curbs on "third country" funds.

The issue of whether non-EU funds should be partly restricted from soliciting EU clients now threatens to become an issue for legislators.

Jean-Paul Gauzes, a French centre-right lawmaker responsible for the draft in parliament, wants to ban third country funds and managers whose home rules are deemed by the EU not to be of an equivalent standard to the bloc's new rules, the news service said.

The rules must not create a sieve so that funds with weaker standards can sneak in, Gauzes said.

The hedge fund industry fears it is being unjustly blamed for helping cause the financial market turmoil, despite the fact that even in 2008, when they suffered record losses of -19 per cent, hedge fund losses were not as bad as for mainstream market indices as a whole.

Britain's EU lawmakers oppose a ban and want member states to be allowed to continue authorising non-EU hedge funds and managers on their territory. They fear the bar set for "equivalence" of standards will be set so high that no funds from outside the EU will qualify.

"We are pretty much in deadlock," said British Conservative centre right lawmaker, Syed Kamall.