LONDON, April 30 (Xinhua) -- Leaders of Britain's financial sector call a European Commission proposal to regulate hedge funds a "blatant attack" on London's financial services industry.

    The directive looks set to open a deep divide between the United Kingdom where more than 80 percent of the alternative investment industry is based and the rest of Europe.

    The Daily Telegraph on Thursday reported that the directive is particularly tough on non-European fund operators because it stipulates that only funds held in Europe can be marketed in the European Union.

    An estimated 90 percent of hedge funds are domiciled offshore while the industry is also dominated by American players.

    "This is a blatant attack on the UK and U.S. financial systems by continental countries that neither have a tradition of alternative investments nor a proper understanding of them," said Antonio Borges, chairman of the Hedge Fund Standards Board. "With the European elections coming up this is clearly political."

    In Europe, however, the directive was criticized for not going far enough. Poul Nyrup Rasmussen, a Danish MEP and president of the Party of European Socialists who led parliamentary pressure for the new rules, said the commission had come forward with a regulation that was "so light, it's flyweight."

    "Private equity can pop the champagne today but they may not be celebrating for long as we will not accept such an ineffective regulation," he said.

    The directive proposes imposing "demanding regulatory standards" on all managers with funds of more than 100 million euros.

    The regulations will also extend to "all major sources of risks in the alternative investment value chain" including "key service providers ... depositories and administrators". The directive says they will be "subject to robust regulatory standards."

    The proposed legislation still needs the backing of the European Parliament and member states, which is unlikely to happen before the middle of next year.