New proposals would force asset managers to comply with rules limiting bonuses and allowances
The European Banking Authority’s (EBA) latest proposal to curb remuneration for bankers would pose a ‘significant challenge’ to asset managers and may even force some to change their business models as they find themselves forced to comply, according to PwC.
The proposals issued last week would be tightly enforced on a sector composed of wide-ranging business models and operating methods, preventing many of them, particularly in the UK, from skirting new rules as they have done in the past, PwC says in a statement on its website.
‘The implications of the EBA’s proposed guidelines for asset managers are significant and arguably represent the biggest challenge yet for the sector with regards to pay regulation,’ says Tim Wright, asset management reward leader at PwC, in the statement. ‘The asset management sector comprises a wide variety of firms and all will be looking closely at the options open to them for mitigating the impact of the proposed changes. Firms needing to comply with the new rules will face significant challenges, not just around their remuneration structures but also their operating models.’
The EBA kicked off a three-month consultation process last week, looking at a series of proposals meant to close loopholes firms could use to increase pay for staff. It is seeking to establish ‘the governance process for implementing sound remuneration policies across the EU, as well as the specific criteria for mapping all remuneration components into either fixed or variable pay.’
The EBA proposals would remove national waivers that could be applied in some cases to rules that dictate the maximum a banker could be paid in bonuses in relation to his or her fixed pay. The rules would also set limits or conditions for remuneration elements such as allowances, sign-on bonuses, retention bonuses and severance pay.
‘Until now most asset management firms have been able to [avoid applying] the prescriptive requirements with respect to bonus capping, deferral and payments in instruments,’ Wright says. The EBA’s latest ‘proposals mean regulators and firms will not be able to neutralize such requirements in future.’
Despite the implications for many asset managers, the Financial Times reports that a number of fund groups – including Vanguard, Standard Life Investments, Man Group and T Rowe Price – would escape the changes. It reports that as the latest version of Europe’s Capital Requirements Directive (CRD IV) applies to ‘any asset manager that has permission to hold client money or carry out proprietary trading’, some funds would not be affected – putting them at a ‘huge’ advantage to some of their biggest competitors, according to Wright
