Brussels, 26/02/2014 (Agence Europe) - On Tuesday 25 February, the European Parliament and EU Council of Ministers reached agreement on the draft directive to give investors in UCITS unit trusts greater protection in the wake of the Madoff scandal (see EUROPE 11012).
Whistleblowers will now have the opportunity to point out abuse anonymously to the national authorities and European Securities and Markets Authority (ESMA). Sven Giegold (Greens/EFA, Germany), the Parliament rapporteur, said this was the first time that such whistleblowing measures have been included in financial services legislation.
Only central banks, banks or registered investment companies with sufficient capital reserves will be able to act as depositories (companies holding the securities bought by UCITS fund managers) and in the event of depository insolvency, assets in a UCITS fund will now have better protection because they will be segregated from the depository's own funds. It will be possible to hold depositories liable for losses by companies to which they have outsourced the holding of assets.
Limits on bonus payments. To act as a brake on excess risk-taking, the new rules will apply 18 months after they come into force and will restrict the variable pay of UCITS managers in the same way as the restrictions on the pay of speculative fund managers and bank managers. Bonus payments will not be capped, but half will have to be paid in shares in the UCITS fund itself. The payment of bonuses in the form of shares in the fund management company means managers' pay is determined by profits rather than the actual value of the UCITS fund, explains Giegold. In addition, 40% of a bonus will be held back for at least three years, rising to 60% of very high bonuses. Arlene McCarthy (S&D, the United Kingdom) said that the new rules are in line with the rules for bankers in the sense that there will not be any guaranteed bonuses for fund managers. ESMA will draw up guidelines to identify who exactly will be covered by the new rules. Third parties to whom work has been outsourced will not be covered.
The rapporteur regretted that the rules will not cover performance payments for fund management companies, companies that he described as being so opaque that they work like thieves. Giegold said that stricter rules were blocked by the liberals and conservatives during an earlier Parliament vote.
The draft legislation harmonises administrative penalties for fund managers who fail to meet their obligations. Fines will be capped at €5 million or 10% of turnover for companies and €5 million for individuals. (MB)