A group in the European Parliament has voted to cap bonus payments to investment fund managers.
The Economic and Monetary Affairs Committee (EMAC) ruled that the employees’ salaries must be linked to their funds’ performance.
The draft law states that the variable component of a fund manager’s total salary should not exceed their fixed component salary and 50% of the variable remuneration should be paid in the units (assets) of the undertakings for collective investments in transferable securities (UCITS) concerned.
The politicians decided that fund managers’ pay should be always aligned with investors’ interests and the performance of the fund in question.
The ruling could mean that:
- UCITS, which gather assets from ordinary retail investors and pool them to buy bonds, shares or other financial products, will be subject to stricter rules to protect investors in them properly.
- Depositories, which hold UCITS assets for safekeeping and ensure that their transactions comply with all applicable laws, must act independently and solely in the interest of the UCITS asset holders, and managers must not trade in UCITS assets on their own account.
- The new rules would also make UCITS fund depositories liable to UCITS and their asset holders for any loss of their assets, even if these assets were held in custody by a third party.
MEP Sven Giegold, of the Alliance 90/The Greens party, said: “The UCITS bonus cap will help strengthen investor protection and reduce risky speculation.
“It will also complement the recently-adopted EU rules capping bankers’ bonuses, ensuring these rules cannot be circumvented and providing for a level playing field.”
Jon Terry, a partner in PricewaterhouseCoopers’ reward team, added: “If the final rules are even close to what has been agreed, then this will fundamentally change the way asset managers are paid.
“Asset managers who manage UCITS products are likely to push-back on why they are now facing the toughest pay rules across the whole of the financial services sector.
“UK fund management firms are set to be disproportionately hit by any bonus cap rules because bonuses tend to make up a greater proportion of pay.
“Many firms will have to completely review how they pay their fund managers and senior staff due to the large proportion of pay that would be affected by any such rules.”