Negotiation of the controversial UCITS V directive was accelerated at EU level recently by a decision to schedule a working group meeting on UCITS V for 21 October. The decision to accelerate talks was taken by Lithuania, who holds the EU’s rotating presidency until December, and represents a reversal of Lithuania’s previously stated position that UCITS V discussions were not a priority.

The resumption of talks are thought to have resulted from industry pressure to agree the UCITS V directive in advance of the European Parliament elections, due to be held in May 2014. Failure to agree the directive in advance of the elections, has raised concerns that a new parliament might re-introduce some of the more controversial aspects of the early UCITS V proposals – namely, the proposal to cap bonuses for fund managers at 100% of salary and the proposal to impose penalties on managers of funds that can charge performance fees but which underperform their benchmark. Both proposals were only narrowly rejected by MEPs earlier this year (348 votes to 341).

The European Council working group meeting, which was held on 21 October, is understood to have considered a number of further amendments to the remaining UCITS V proposals on bonus payments. The amendments in question were proposed by The European Fund and Asset Management Association (EFAMA) and include proposals to:

• Permit fund staff to receive 75% (rather than the 60% currently proposed) of any bonus in the year in which the bonus is awarded
• Remove the Commission’s current proposal to force asset managers to be paid a portion of any bonus in units of the UCITS they manage

EFAMA has additionally emphasised the need to ensure consistency of remuneration policies across industry so as to avoid conflicts of interest, for example, by creating different incentives depending on whether relevant staff work on a UCITS, hedge fund or segregated mandate.

Contributed by James Phelan