Minimum Standards
UCITS, or Undertakings for Collective Investment in Transferable Securities, had more than 6 trillion euros ($7.7 trillion) under management as of April 2012, according to the European Commission. The funds are regulated at EU level and have the right to operate throughout the 27-nation bloc if they meet minimum oversight and investor-protection standards.
“Misuse of performance fees has to end,” Giegold said. “There’s so much talk about cultural change in financial industry, but when it comes to limiting structures of risk taking and greed people are saying that’s the end of the market economy. I don’t agree, I really don’t.”
The European Commission is skeptical of the benefits of the draft fund-manager-pay rules, because it hasn’t seen evidence that pay structures in the industry are leading to excessive risk taking, according to an EU official. Also, the failure of a UCITS fund doesn’t present the same threat to financial stability as the failure of a large bank, the official said.
‘Gradual Erosion’
The commission declined to comment on the draft pay rules.
Mark Boleat, policy chairman at the City of London Corporation, the British financial district’s local government, said that there is a “real risk” the U.K. finance industry could be at a disadvantage to centers outside the EU.
“It is unlikely that we will see dramatic examples of business moving away from London, but there could be a gradual erosion as new investment moves elsewhere,” he said.
Like the bank-bonus curbs, the UCITS rules would have to be approved by the parliament and by the Council of Ministers, which represents national governments in the EU. The council has yet to take a position on the UCITS measures.
There must be a “level playing field” to prevent banks using UCITS structures to evade tougher pay rules, Giegold said.
The rules for bank pay are part of broader draft law that would also set tougher capital and liquidity terms for lenders. Today’s endorsement by ambassadors clears the way for the rules to be voted on by parliament and signed off by ministers.
Last week’s vote by the assembly’s economic and monetary affairs committee was part of the parliament’s work to prepare its negotiation position on the UCITS measures. Sharon Bowles, chairwoman of the committee, said the precise form of the bonus curbs is still up for debate.
“The political signal is clear - the parliament wants something on remuneration,” Bowles said last week. “We have a bit of time to see if we can revisit it to make it more tailored to investment firms,” she said.