The proposals, laid down by the European Securities and Markets Authority (Esma) yesterday, target the bonuses of senior executives at hedge funds and private equity funds to bring pay controls in-line with the increasingly stringent remuneration policies of City banks.
Wall Street’s colossal hedge fund industry, worth some $1.6 trillion in assets, is also set to be hit by the rules, as Brussels seeks to clamp down on overseas managers who market their funds to European investors. The two policies will add to worries that control of City rules is moving inexorably to the EU.
Esma chair Steven Maijoor yesterday said the guidelines will help promote “prudent risk-taking” but critics say the rules are a “bad fit” for the industry.
The UK’s Financial Services Authority will now be tasked with making the proposals fit with UK law. It is set to launch a consultation on the proposals later this month.
The rules will restrict how and when managers can take their bonuses to make them more like bankers’ bonuses.
Esma says deferred bonuses should be paid out over a three-to-five year period, with firms encouraged to consider even longer delays for members of management.
“It’s like trying to impose rugby rules to a football game,” hedge fund adviser Joe Seet, senior partner at Sigma Partnership said.
“If the FSA takes on the entire guidance then a lot of these guys are going to move to Singapore.”
The pay curbs are in response to a hotly contested directive laid in July 2011 to regulate alternative funds.
The Alternative Investment Fund Managers Directive is to be implemented by 22 July, giving UK regulators a tight timetable.
The power grab from Brussels comes as an influential group of central bankers and regulators yesterday launched a separate initiative to make all fund manager pay dependent on performance. The Group of 30, which includes former European Central Bank president Jean-Claude Trichet and Lord Adair Turner, has called on state regulators to propose new guidelines to link bonuses to a three-year performance timeframe.