21 March 2013

Fund managers one step closer to tougher bonus rules after MEPs vote - PwC comments

PwC's Jon Terry said that there was a long way to go to finalise any remuneration provisions, and that the industry needed to make a strong and persuasive case to water down these proposals significantly, or risk being stuck with "onerous and restrictive rules".

The European Parliament's Monetary Affairs Committee (ECON) today voted on the remuneration rules to apply to asset managers who manage UCITS funds. This is an important marker as to the Parliament's position regarding asset managers' pay and starts the process as to what the final remuneration provisions will be within the UCITS V Directive. Much negotiation lies ahead, but the starting position is now clear.

Jon Terry, partner in PwC’s reward team, said:

“If the final rules are even close to what has been agreed today, 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.

“The move to cap bonuses at one times salary follows similar proposals in the banking sector, but ECON's position is that asset managers should not be granted the same flexibility to increase the compensation mix with shareholder agreement.

“UK fund management firms are set to be disproportionately hit by any bonus cap rules as 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.

“Asset managers will be concerned that ECON is suggesting a definition of those individuals who would be subject to the prescriptive rules which is far more explicit than those for banking or the alternative sector. If passed unchanged, this would significantly increase the number of people hit by the rules across senior management and the front, middle and back office.

“There is a long way to go to finalise any remuneration provisions and the industry needs to make and strong a persuasive case to significantly water down these proposals or risk being stuck with onerous and restrictive rules.”

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