Jon Terry (pictured), partner in PwC’s reward team, comments on the European Parliament’s suggested amendments to the UCITS V Directive, which, if passed, will have major implications for all European asset management businesses…

If passed unchanged, these proposals will leave asset management businesses managing UCITS products facing even tougher pay rules than the banking sector.

Although most asset management firms are already caught by the pay rules for the banking sector (CRD III), the application of proportionality means that many haven’t been affected by the more prescriptive rules on deferral and receiving remuneration in shares.

As proposed, the pay rules under UCITS V are far tougher than those being proposed for the alternatives sector under AIFMD. As well as the proposal to cap bonuses, the definition of identified staff is far more explicit and would significantly increase the number of people caught by the rules.

This is another blow for the European financial services sector as it further widens the gap between pay practice in the US and Europe. If passed as proposed, these pay rules will make it much harder for the European asset management industry to retain its key talent and compete against its American and Asian counterparts.

The insurance industry is likely to be nervous as they watch the banks, hedge funds and asset managers being hit with ever increasingly rigid regulations of their pay. Many will now be concerned that it could only be a matter of time until similar regulations affect them.