Victory for fund managers as EU scraps pay cap

Michael Bow
Follow Michael
EUROPEAN politicians yesterday voted against plans to cap city stock pickers’ bonuses, signalling a major victory for the UK fund management industry.

The EU parliament voted by a slim majority of 348 votes to 341 against plans, which would have prevented fund manager bonuses exceeding their annual pay.

It follows widespread concerns in the city that capping variable bonus pots would drive up fixed costs for investment firms.

However, fund managers are still likely to come under increased pressure to show how they align pay with investors interests in future.

The vote came as part of wider discussions about the fifth directive to regulate so-called undertakings for collective investment in transferrable securities (Ucits).

The influential chairman of the EU’s economic and monetary affairs committee Sharon Bowles MEP said politicians did not want to “undermine” the funds.

“European Ucits are an important brand globally and possibly the only retail investment product that has not been tarnished by the financial crisis,” she said.

However, German MEP Sven Giegold, who tabled the original amendment, said the outcome of the parliamentary vote was a “black day” for investor protection.

The pay restrictions, similar to a cap on bankers’ bonuses, had been heavily criticised for misunderstanding the fiduciary aspect of the fund management industry.

PwC partner Jon Terry said: “The bonus cap would have left fund managers facing the toughest pay rules across the whole of the financial services sector.

“The vote against the cap demonstrates an acceptance from rule makers that the asset management sector operates very differently to the banking sector in terms of risk profile.”

Voting down the proposal is a major coup for the UK, which has lobbied hard to scrap plans for a cap.

“It shows the UK can make its voice heard in Europe when it has a clear negotiating strategy and moves early enough in the EU’s law-making process,” said Vincenzo Scarpetta, an analyst at thinktank Open Europe.

The victory is a boost for chancellor George Osborne, who outlined plans to help the UK’s fund management industry stay competitive in this year’s Budget. The strategy included a commitment to help drive the location of funds to UK shores.