McCreevy has his sights set on bankers' 'bogus' bonuses

Published on Wednesday 29 April 2009 21:21

EUROPEAN officials are set to stamp on bankers' bonuses in an effort to quell public anger over "rewards for failure" and usher in tighter rules for the £2 trillion hedge fund and private equity industry.

Industry figures last night lashed out at the EU proposals, warning they could threaten thousands of jobs and slow down the global recovery.

Under the EU's new rules, banks would be allowed to claw back staff bonuses when performance claims proved to be bogus, a step that employment lawyers say will be hard to do.

The push for tighter regulation follows public outrage over the 703,000 a year pension granted to former Royal Bank of Scotland chief executive Sir Fred Goodwin despite the bank being bailed out by the government.

Charlie McCreevy, the EU's internal market commissioner, yesterday said: "As the (2008 banking] crisis unfolded, there was more than a hint of 'take the money and run'."

The EU's executive arm also proposed that hedge fund managers must register and be subject to close scrutiny to operate inside the union.

Managers, along with private equity groups, would also be required to report data to supervisors to ensure no dangerous risks are building up that could destabilise the wider global financial system.

While hedge funds account for only a small proportion of Scotland's financial services sector, the majority of Europe's hedge funds are managed from London.

Florence Lombard, executive director of the Alternative Investment Management Association, said: "Hastily prepared and without consultation, the directive contains many ill-considered provisions that are impractical and may prove unworkable.

"The unintended consequences of these measures may put thousands of jobs in several major European industries under threat and slow down any economic recovery."

The proposed regulations will require registration for funds managing more than 100 million (90m) of assets – covering some 30 per cent of hedge fund managers dealing with 90 per cent of assets in European Union-based funds. The European Commission said it would set transparency and governance standards and ensure funds could handle risks, liquidity and conflicts of interest.

Any new rules will need the backing of the European Parliament and EU governments and will probably be debated intensely over the next year, possibly changing before they become final.

A spokeswoman for trade body Scottish Financial Enterprise said: "Hedge funds are not a big feature in Scotland but, while we support clarity and awareness of risk, we would be concerned at the direction legislation could take."

Her comments were echoed by a spokesman for asset manager Martin Currie, who added: " The UK is the domicile of choice for European hedge fund managers and it is a fallacy to say that such managers are unregulated. FSA (Financial Services Authority] oversight is rigorous.

"Regulation should serve to provide market efficiency and protect investors – it shouldn't be used to seek political advantage."