30 Jul 2010
The FSA’s announcement of a consultation document covering the payment of bonuses has created consternation in the hedge fund sector in the UK, as it holds out the prospect of limits on bonuses funds can pay certain key staff. Previously the regulator was only looking at bonuses paid in major banks, but it now seems to regard the entire asset management sector, including hedge funds, as fair game.
The FSA said that the proposed update to its Remuneration Code was intended to take on board remuneration rules required by the Capital Requirements Directive and the Financial Services Act 2010. The coverage of the new regulations is much wider than formerly outlined, including hedge funds and UCITS investment firms. The FSA said it “does not intend the final rules to be super-equivalent to the CRD3 requirements unless required to do so by UK legislation.”
The FSA is currently consulting on which employees within a firm will be covered by the revised Code, but this will include senior management and anyone with activities that could have a material impact on a firm’s risk profile.
At least 40% of a bonus must be deferred over a period of at least three years for all ‘code staff’. At least 60% must be deferred when the bonus is more than £500,000. At least half of the variable remuneration components must be made in shares, share-linked instruments or other non-equivalent non-cash instruments of the firm.
Total variable remuneration “must be significantly reduced in circumstances where the firm produces a subdued or negative financial performance,” the FSA said.
The consultation period ends on 8 October 2010, and the FSA said it would issue a policy statement on the issue in November. The regulator recognised that the timetable was tight, and said it has proposed some transitional provisions to give smaller firms some leeway in implementing certain provisions.
This move by the FSA could not have come at a worse time, with several large hedge fund companies already moving out of London for premises in Switzerland. Indeed, Moore Capital, a US hedge fund, said this week it would be opening an office in Zurich for senior members of the firm to work in a lower tax environment. Senior portfolio manager Kornelius Klobucar is understood to be moving to Zurich to manage that operation. Bloomberg reported yesterday that senior Moore portfolio manager Jean-Philippe Blochet would also be moving to Switzerland.
Some commentators have claimed that this is a storm in a tea cup, and that in reality the FSA will choose not to apply these restrictions, and is only going through the motions for Brussels’ benefit. There is also the issue of the AIFM directive, of which more on the UCITS Hedge website next week. The real question is, will the FSA hold back, or will it force a decent chunk of the UK’s hedge fund talent to move abroad.
See you in Geneva.
The FSA said that the proposed update to its Remuneration Code was intended to take on board remuneration rules required by the Capital Requirements Directive and the Financial Services Act 2010. The coverage of the new regulations is much wider than formerly outlined, including hedge funds and UCITS investment firms. The FSA said it “does not intend the final rules to be super-equivalent to the CRD3 requirements unless required to do so by UK legislation.”
The FSA is currently consulting on which employees within a firm will be covered by the revised Code, but this will include senior management and anyone with activities that could have a material impact on a firm’s risk profile.
At least 40% of a bonus must be deferred over a period of at least three years for all ‘code staff’. At least 60% must be deferred when the bonus is more than £500,000. At least half of the variable remuneration components must be made in shares, share-linked instruments or other non-equivalent non-cash instruments of the firm.
Total variable remuneration “must be significantly reduced in circumstances where the firm produces a subdued or negative financial performance,” the FSA said.
The consultation period ends on 8 October 2010, and the FSA said it would issue a policy statement on the issue in November. The regulator recognised that the timetable was tight, and said it has proposed some transitional provisions to give smaller firms some leeway in implementing certain provisions.
This move by the FSA could not have come at a worse time, with several large hedge fund companies already moving out of London for premises in Switzerland. Indeed, Moore Capital, a US hedge fund, said this week it would be opening an office in Zurich for senior members of the firm to work in a lower tax environment. Senior portfolio manager Kornelius Klobucar is understood to be moving to Zurich to manage that operation. Bloomberg reported yesterday that senior Moore portfolio manager Jean-Philippe Blochet would also be moving to Switzerland.
Some commentators have claimed that this is a storm in a tea cup, and that in reality the FSA will choose not to apply these restrictions, and is only going through the motions for Brussels’ benefit. There is also the issue of the AIFM directive, of which more on the UCITS Hedge website next week. The real question is, will the FSA hold back, or will it force a decent chunk of the UK’s hedge fund talent to move abroad.
See you in Geneva.
