Obviously lawmakers in the European Union normally have their finger firmly on the pulse of what’s economically important and relevant, right? You’ll be surprised to learn, then, that a directive known as UCITS V had been agreed that would have banned bonuses for being any bigger than salaries for fund managers throughout Europe. Thankfully, seeing as the fund management industry is mostly based in London, the plan has been rejected by 348 votes to 341.
So what was it all about? Well, it was essentially an arbitrary levy concocted as part of the tide of anti-banker sentiment, ignoring the fact that the fund industry did not receive any state-funded bailouts at the height of the economic crisis. And also the fact that the industry is entirely about private or commercial investment – nothing to do with the government’s remit in financial matters. And also the fact that fund managers’ pay is implicitly controlled by the freedom of their customers to withdraw their money and put it elsewhere at any time.
Anyway, if it had gone ahead, it would at best have taken all of the incentive out of being in fund management in the first place (the point of it is making huge money), or, at odds with the EU’s purported aims, it would have resulted a salary explosion so that fund managers could still get their hefty wads of cash.
Sharon Bowles is a British MEP and the chairman of the EU’s Economic and Monetary Affairs Committee, and she says: ‘I have always maintained that banks have a monopoly on liquidity and lending, both of which are ultimately provided at public expense.
‘For this reason I do not think it is appropriate to roll out the same bonus cap across all financial services legislation...We have to be proportional, not reactionary, when it comes to regulating the financial markets.’ Thank goodness someone in Brussels has a clear (and at least reasonably well-informed) head.
Still, anti-banker sentiment from the public continues to exert pressure on the financial services industry as a whole. Fund managers will probably still face some kind of regulation requiring them to be more transparent, but it looks like, at least in the short term, they’re off the hook…