Europe's fund managers are facing a ban on bonuses that exceed salary as the European parliament pushes for the extension of its severe pay clampdown on bankers to the wider financial sector.
In a political development that shows how the bankers' bonus cap could snowball through the world of finance, the parliament's main parties support inserting the curbs into a year-old reform proposal for Ucits funds – a popular investment product that can be sold across EU borders – which have net assets of €6.4 trillion.
The parliament's draft negotiating position, seen by the Financial Times, would enforce a maximum 1:1 ratio of bonus to salary and requires up to 60 per cent of the variable element to be deferred and largely paid in units of the fund the manager runs.
All the main political blocs are expected to back the cap in a formal vote on Thursday – signalling that EU lawmakers see the bonus cap as a template for prudent remuneration policy, which will be applied to asset managers, hedge funds and shadow banking when the legislative opportunity arises.
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If agreed, the Ucits overhaul will be a shock to the fund management sector, which until now has largely enjoyed free rein to set managers' pay without having to disclose the details to the public. EU member states must also approve the proposal for it to become law.
The emergence of another Brussels pay crackdown will also alarm British ministers, who lost their battle to head off the bonus cap initiative and will be loath to see its principles imposed across an even bigger swath of the City of London.
Sven Giegold, the German Green who is leading negotiations for the parliament, told the Financial Times: "The bonus cap for the banks should be extended to Ucits. It is very hard to argue against. This will ensure a level playing field with the banking industry and reduce systemic risk by avoiding the bonus cap on banks from being circumvented."
So far only the UK Conservatives have spoken against the measure in private meetings.
Syed Kamall, the British Conservative MEP involved in the talks, described the bonus cap as politically attractive but "wholly inappropriate". "This move appears to be more motivated by a dislike of high salaries rather than mitigating systemic risk," he said.