The European Parliament today voted to revise draft EU legislation on investment funds (the UCITS directive), with a total sector value of almost € 6.3 trillion in funds. The vote on the legislation, which is being shepherded through the European Parliament by Green draftsperson/rapporteur Sven Giegold, also includes provisions on remuneration and performance fees which both were defeated with slim majorities. After the vote, Sven Giegold, Green finance spokesperson, stated:
“Today is a black day for investor protection in Europe. Conservative and Liberal members have voted down rules reducing excessively risky speculation by investment fund managers. A comprehensive change of the culture in the financial industry has been forestalled.
Crucially, MEPs have voted down to cap bonuses for fund managers and employees with an influence on investment decisions to the maximum of fixed remuneration. 24 months of pay should be a more than sufficient incentive for fund managers and employees to successfully carry out their duties. This provision should have complemented the recently adopted EU rules capping bankers’ bonuses, ensuring these rules cannot be circumvented and providing for a level playing field.
Additionally, conservatives and liberals deleted rules the economic and monetary affairs committee proposed to significantly limiting performance fees for management companies. These opaque fees for management companies are a rip-off for investors, unfairly reducing their income from funds.
“MEPs today also broadly endorsed the original proposals from the EU Commission which aim to improve investor protection through strict liability on depositories, combined with tougher sanctions: strengthening and harmonising existing regimes to limit the scope for arbitrage. All amendments by Conservative and Liberal MEPs to weaken the Commission’s proposal are therefore finally defeated.
Now that the European Parliament finalised its position on the UCITS V reform, the ball is in the half of the Council to finally progress on the dossier. During upcoming triogue negotiations todays achievements will have to be defended against interests of the indivudual Member States. Consumer protection for investment funds has to be regulated on European level to provide a level playing field for undertakings carrying out businiss throughout the Union from any Member State.