European politicians have agreed a deal to force fund managers to take half of any bonus payments in units of their own funds, in order to “deliver greater protection for investors”.
Members of the EU agreed today a series of rules known as Ucits V, the European fund structure rules that also saw the introduction of the key investor information document (Kiid) two years ago. The latest iteration of the directive is set to come into force in 2016.
Investment Adviser reported a year ago that German MEP Sven Giegold had introduced the idea of fund manager bonuses being paid in fund units.
In addition, 40 per cent of a fund manager’s bonus must be deferred for at least three years, or 60 per cent “in the case of very high bonuses”.
The EU’s main financial regulator, the European Securities and Markets Authority, will draft guidelines on other staff other than fund managers who will be subject to the bonus rules. This is in order to stop people avoiding the rules by outsourcing management to third parties.
Mr Giegold said today: “Today’s deal will deliver greater protection for investors, as well as taking steps to reduce reckless risk taking in the investment fund sector.
“The revised legislation includes important provisions on remuneration that will ensure the interests of investors are better reconciled with those of fund managers.”
Arlene McCarthy, Labour MEP and vice-chair of the EU’s Economic & Monetary Affairs Committee, said the remuneration policy “brings funds in line with EU bankers’ bonus rules”.
She added: “We want to ensure that responsible remuneration policies are in place across the financial sector and that there are no loopholes for risky and dangerous trading practices.”
Mr Giegold had also attempted to include a performance fee ban but this was thwarted during negotiations on the rules last year. He said the failure to introduce such rules was “a missed opportunity”.
Elsewhere, the Ucits V rules also bring in stricter rules on the companies which can qualify as depositaries to hold money on behalf of investors. The new rules mean “only a limited number” of “sufficiently-capitalised and supervised authorities” will be permitted as depositaries.
The EU has also introduced protections for whistleblowers and given regulators the scope to levy hefty fines on companies which break the rules.
Ucits rules govern the operation of the majority of retail funds across Europe, including UK products, and apply to more than €6.3trn (£5.2trn) worth of assets.