On 21 March 2013 the European Parliament’s Economic and Monetary Affairs Committee (“ECON”) narrowly voted in favour of German Green Party MEP Sven Giegold’s proposal that the variable component of the annual remuneration paid to certain staff categories within UCITS management companies should not exceed the fixed component. If left unchanged, this cap on bonuses at 100% of salary will effectively leave UCITS manager’s subject to more stringent remuneration requirements than those applied under AIFMD, CRD III and CRD IV.

Lead MEP Sven Giegold has stated that “The UCITS bonus cap will help strengthen investor protection and reduce risky speculation. It will also complement the recently-adopted EU rules capping bankers’ bonuses, ensuring these rules cannot be circumvented and providing for a level playing field”.

Under AIFMD Level 2 guidelines issued by ESMA, remuneration restrictions were extended to delegated management and given that the intent of UCITS V is to replicate much of the AIFMD rules, the concern is that the remuneration restrictions will impact the wider asset management industry, including US fund managers of EU-domiciled UCITS.

Other significant features of the remuneration provisions approved by ECON are as follows:

• At least 50% of the variable payment should consist of payment in units of the UCITS concerned, unless management of UCITS counts for less than 50% of the management company’s total portfolio.
  At least 25% (and in some cases 60%) of variable compensation should be deferred over a period which is appropriate in the context of the lifecycle and redemption policy of the UCITS concerned.
• ECON also voted in favour of a proposal that will see management companies being able to charge performance fees to UCITS only in circumstances where such fees reflect performance in comparison to a benchmark symmetrically, such that underperformance of the benchmark would result in deductions equal to the level of performance fee paid for equivalent outperformance.

The European Parliament has never reversed a decision voted in ECON and the amendments approved by ECON are likely therefore to form the Parliament’s position during the process to finalise the UCITS V Directive.

The European Parliament is scheduled to vote on the proposal on 22 May 2013. If agreement is swift thereafter, the text of the proposed UCITS V Directive could be formally adopted towards the end of 2013. Once the final text is agreed, Member States are likely to have a period of two years to transpose the Directive into national law.

Contributed by James Phelan