Funds to be hit by bonus rules
Cash bonuses to be capped at 30 per cent
Hedgies and investment firms fall into EU’s net
Politicians say clamp down will end risk-taking
HEDGE funds and asset managers will be caught in the tough crackdown on bankers’ bonuses put forward by European Union politicians and member states last night.
In the harshest measures yet proposed for pay deals in the financial sector, lawmakers and countries said the cash portion of a bonus will be capped at 30 per cent of the total amount, or 20 per cent for particularly large handouts. Up to two thirds of a bonus will have to be staggered over three to five years, and at least half of the upfront element will need to be in shares or other securities linked to the institution’s performance.
The rules, due to be rubber-stamped in Strasbourg next Wednesday, mark a watershed moment in governments’ ability to dictate terms to the world’s most powerful companies. They come two years after the financial crisis brought Lehman Brothers to its knees and prompted desperate state rescues of firms like American International Group and Royal Bank of Scotland on either side of the Atlantic.
Arlene McCarthy, the MEP responsible for pushing through the agreement, said: “A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price. The public want banks to prioritise stability and lending over their own pay and perks.”
It is thought hedge funds and investment houses will be caught up in the red tape. Last night the European parliament was scrambling to clarify the clampdown’s scope, but a spokesman said all outfits dealing in credit would be affected. An announcement is expected this morning.
While British banks have already signed up to strict guidelines on bonuses – including those such as Barclays and HSBC who did not take direct aid – the EU’s restrictions would hit fund managers hard. London hosts 80 per cent of Europe’s hedge fund community and would suffer more than any other member of the 27-state bloc.
Other steps detailed in the EU legislation include tripling the amount of capital banks would need to hold against their trading positions compared to pre-crisis levels, forcing lenders to reveal the number of employees earning more than €1m (£820,000) and asking directors of taxpayer-backed banks to justify their bonuses.
Angela Knight, chief executive of the British Bankers’ Association, emphasised the
efforts UK-based banks had made to bring in G20-agreed standards on bonuses. “The main consequence of this European decision is that other European countries will now have to follow suit,” she said.