EU bonus cap: UCITS asset managers narrowly escape bonus limits

July 2013

Overview

Last week, the European Parliament narrowly voted down rules limiting bonuses for certain asset managers as part of the EU’s upcoming Undertakings for Collective Investments in Transferable Securities directive (UCITS V). As our March Financial Services Regulatory Brief on this topic had reported, the full European Parliament’s consent was needed after the Parliament’s Economic and Monetary Affairs Committee had approved the proposal. UCITS are similar to US-registered mutual funds and are subject to extensive EU regulation.

This vote establishes the European Parliament’s position with respect to upcoming negotiations with the European Commission and European Council (collectively, the “Trilogue”) regarding the UCITS V directive. The asset management industry had opposed the limitations on bonus pay, arguing that the asset management sector has a different risk profile than the banking sector (which is set to be impacted by the EU’s banker bonus cap on January 1, 2014).

Without the European Parliament’s affirmation, it is unlikely that UCITS V will include the cap. The rest of UCITS V will likely be implemented in the second half of 2015 or early 2016, after the Trilogue negotiations are complete and the European Securities & Markets Authority (ESMA) and European Commission complete any needed regulatory standards or guidance.

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