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Wednesday, July 03, 2013

MEPs reject plans for controversial fund managers' bonus cap

The European Parliament has voted down a controversial proposal put forward by German Green MEP Sven Giegold to introduce a bonus cap for managers of UCITS investment funds. Mr Giegold wanted to curb bonuses so that they could no longer exceed managers' basic salaries.

However, UK Conservative MEP Syed Kamall brokered an amendment with the European People's Party (EPP) and the Liberals (ALDE) to scrap the bonus cap. The amendment was passed this morning. It establishes that bonuses
"shall be considerably contracted where subdued or negative financial performance of the management company or of the UCITS concerned occurs, taking into account both current compensation and reductions in payouts of amounts previously earned."
MEPs will now wait for EU member states to agree on a common position on the new UCITS rules. After that, negotiations will start.

Mr Giegold has called today a 'schwarzer Tag' (a 'black day'), but the truth is the bonus cap would have been a bad idea for a number of reasons:
  • Unlike banks, investment funds haven't received a penny from taxpayer-backed rescue packages. Therefore, although one can agree with the need to align pay with performance in the financial services sector, it would have made little sense to impose on fund managers a harsher bonus cap than the one recently introduced for bankers.
  • The cap would also have undermined the competitiveness of the UCITS industry, which currently accounts for over 70% of net assets managed by the entire European investment fund industry.
  • Perhaps most importantly, such a largely ideological measure could have made the City of London more eurosceptic at a time when the debate over the future of UK-EU relations is at a crucial stage.
So, good news from Strasbourg, although similar proposals on remuneration in the financial services sector are likely to come up again sooner or later - especially from the European Parliament.

However, today's vote shows that the UK is indeed listened to in Europe when it comes to financial regulation (although it also helped that a lot of UCITS funds are based in France). It's all about having a clear negotiating strategy and moving early enough in the EU's law-making process.    


Anonymous said...

Debunks the FT myth that the Tories lost influence when they left the EPP

Rik said...

Still most people donot grasp that there is a difference between the local stuff and the international ones.

Local: basically we see local banks (or departments of larger banks). Usually overstaffed (and the overstaffed are considerably overpaid as well), coststructure way too high, number of branches ridiculous.
These banks should be made efficient (they take simply too much from GDP for what they deliver), probably by more real competition (and not the oligopoly it is now).
If necessary via regulators like with telecom in some countries forcing them to reduce prices. Can relatively easy be done as these banks donot have an alternative and so do their generally overpaid employees.
Here the main problems did arise btw, look at the EZ (mainly local stuff that got into trouble usually because they thought they were the next GS).

International is a different sport. Huge international competition and very flexible. They can relocate in a couple of years if necessary.
Generates a lot of EU (mainly UK) income.
You have to be much more careful with that.
Of course there should be regulation (and probably better one than now) but they should also remain competitive.
Little use to chase them away from a risk pov as well btw. Basically the same things will keep happening only out of your jurisdiction (so you have much less grip on it). And that the new country of residence will save them if it is a smaller country or a tax haven forget it. Riskprofile simply doesnot look better only the jobs and other revenue bringers are gone).

Basically these 2 sorts need different rules to make it work, for obvious reasons. At least obvious to me.

Unknown said...

It seems to me that the UK's voice is only heard / used to stop the most STUPID of idea's from happening.

Imagine that we were nothing to do with this stupid institution and didn't have to fight and shout just to stop stupid things from happening!

It is the way the EU works, they put forward really stupid idea's so we end up putting up with a compromise that shouldn't have to happen in the first place!

Get Us Out!