Out-Law / Your Daily Need-To-Know

MEPs back pay and bonus constraints for UCITS fund managers

22 Mar 2013, 12:45 pm

Investment fund managers operating in the EU could be subject to pay and bonus constraints if proposals made by a committee in the European Parliament are backed.

The Economic and Monetary Affairs Committee voted on Thursday to approve draft legislation that, if introduced, would prevent bonuses from being issued to managers of Undertakings for Collective Investment in Transferrable Securities (UCITS) that exceed the level of those managers' salaries. In addition, half of the bonuses would have to take the form of units in the assets being managed.

The Committee said that UCITS "must be subject to stricter rules" in order to "protect investors in them properly". It said that UCITS control funds worth €6.3 trillion.

"The UCITS bonus cap will help strengthen investor protection and reduce risky speculation," Sven Giegold MEP said in a statement issued by the Committee. "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."

Under the Committee's plans there would also be new restrictions and responsibilities placed on the activities of UCITS asset 'depositaries'.

"Depositaries, 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 - they must not trade in UCITS assets on their own account," the draft legislation says, according to the Committee. "The new rules would also make UCITS fund depositaries 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."

The Committee said that the European Parliament is due to vote in April to decide whether to press for the proposals to be developed into law through trialogue negotiations with the European Commission and Council of Ministers.

Late last month MEPs and EU Ministers provisionally agreed a deal which would introduce a general cap on the amount of bonuses bank staff could earn at a level not exceeding their annual salaries. Bonuses worth up to double what staff are paid in their salaries could be awarded if authorised by bank shareholders.

The agreement has yet to be formally approved by EU member states and the European Parliament, but if it is backed the rules on bonus caps could take effect from as early as 1 January next year.