On February 25 the European Parliament and Council agreed on draft EU legislation on investment funds. According to Sven Giegold, Green MEP, member of the EP’s ECON Committee and rapporteur for this legislation, this is a deal that will improve investor protection against reckless risk taking.
The final agreement on the UCITS V Directive will oblige fund managers to take half of any bonus payment in shares of funds managed by them. Forty percent of their variable remuneration will also have to be deferred for at least three years.
The EU’s main financial regulator – the European of Securities and Markets Association (ESMA) -, will also draft guidelines for third parties to whom functions have been delegated in order to subject them to the same remuneration principles to prevent circumvention of the remuneration rules.
UCITS V also brings stricter rules on depositories and securities lending since only a limited number of institutions will now be considered eligible as depositories to hold money on behalf of investors. The new rules established that only “sufficiently-capitalized and supervised authorities” can be considered as such.
Administrative sanctions and the possibility for member states to introduce criminal sanctions are solutions foreseen under the Directive.
The EU also introduces secure channels to whistleblowers in all national competent authorities as well as ESMA and gives regulators the scope to fine companies that break the rules.
Following final endorsement by the Parliament and Council, the legislation will enter into law and is set to come into force in 2016.
Please read Sven Giegold press release here.
Cartoon by Howard McWilliam / The Sunday Telegraph.