FSA Chief Defends EU Bonus Rules

Sep 17 2010 | 1:16am ET

The head of Britain’s Financial Services Authority had some ominous words for hedge funds that hope to skirt strict new European bonus rules.

Adair Turner defended the regulators plan to extend new European Union compensation rules from the country’s 27 largest lenders to 2,500 firms, including asset managers and hedge funds. Under those rules, at least half of any variable compensation must be paid in shares or some equivalent non-cash instruments starting in January. In addition, at least 40% of bonuses will have to be paid out over three years; if the bonus exceeds £500,000, 60% must be deferred.

Earlier this week, industry lobby the Alternative Investment Management Association met with the FSA to urge that hedge funds be exempted from the rules, arguing that hedge funds played no role in the financial crisis.

Turner did not disagree with that point, but said the FSA thinks “it’s important to realize hedge fund could mutate and develop into things that are systemically important.”

“There are circumstances in which remuneration in the asset-management industry could raise legitimate concerns,” Turner said. “I do think it’s appropriate for regulators to worry about potential conflicts of interests in the remuneration structure for fund managers.”

The FSA is accepting comments on its proposals until Oct. 8.

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