Amendments to the European Commission’s July 2012 proposal for a new directive amending current European UCITS legislation (UCITS V) have been published by the European Parliament’s Economic and Monetary Affairs Committee (ECON).

Certain of the proposed amendments were only narrowly adopted at committee level in late March 2013 and resistance has since grown among MEPs to some of the more controversial measures. In particular, numerous MEPs have spoken out against the proposal to cap bonuses (payable to certain categories of fund staff) at 100% of fixed salary and against the proposal to impose penalties on managers of funds that charge performance fees but which underperform their benchmark.

German Green Party MEP Sven Giegold, who has lead the campaign to introduce the controversial measures, and Liberal MEP Sharon Bowles, chair of ECON, have both recently admitted that the measures in question are likely to be overhauled in advance of the European Parliament voting on the proposal. The vote is currently scheduled to take place during the plenary session to be held on 2 July 2013.

Commentators have observed that the bonus cap proposal will likely be revised in line with the fourth Capital Requirements Directive, which limits banker’s bonuses to 100% of salary, but which also provides that this limit can be increased to 200% with the approval of shareholders.

The proposal to impose high penalties for benchmark-underperformance may also be diluted or removed altogether as lobbyists point to the significant risk that such penalties might ultimately fall to be covered out of fund managers’ own capital, thereby threatening their financial viability.

Contributed by James Phelan