Systemically Unimportant Bonuses. the Debate on Asset Managers' Bonuses in the "Ucits V" Discussion

Analyzing post-crisis financial regulation in the making may allow us to identify what is really new in it. The way the debate on the UCITS V European directive unfolded gave us an opportunity to do it. The research was based on the publicly available evidence and on interviews with politicians and lobbyists involved in the discussion. We focus here on one of its more disputed points: the proposal of a bonus cap for asset managers and other decision makers in UCITS funds’ management companies. Voted in the ECON Committee, it was rejected three months later in plenary, both times with a narrow majority. An overview of the process makes it clear this amendment, tabled by the rapporteur Sven Giegold, changed its very nature, a specific discussion on depositaries’ liability becoming a public debate on asset managers’ remuneration. Whereas the “remuneration” part of the directive was first supposed to be aligned with what had been decided for non-UCITS funds in the AIFM directive, the bonus cap was introduced as an alignment on the position of the European Parliament on bonuses in the CRD IV directive, hence in banks. In terms of political strategy, though, the rapporteur himself sees retrospectively the bonus cap as having acted both as a lure, distracting the attention from other issues and in a way protecting the Commission proposal on these issues, and as a signal, fostering a debate on asset manager’s remuneration. Reviewing the arguments used in the debate, we show the most effective one was related to a definition of systemic risk. Industry lobbyists and politicians who were against the bonus cap built on the way the FSB had thought systemic risk as a bankruptcy risk for “too big to fail” financial institutions, explaining asset management companies, who invest on behalf of their clients, were not concerned, the risk being born by the clients, not by the institutions themselves. This in effect destroyed the “alignment” argument, remuneration regulation having been officially justified from the start as a way to curb risk, especially systemic risk. This leads us to a wider discussion on the normative framing of financial regulation and the way it has evolved since the financial crisis of 2007-2008. The concern for systemic risk captures precisely what is really new in this framing, hence the way it is defined and handled now plays a crucial role. We finally describe some points of the still ongoing discussion on this issue, stressing in particular the relationship between asset management and systemic risk has become a disputed matter and is being progressively thought anew.