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Hedge Fund Bonus Restrictions

Hedge Fund Bonus Restrictions

FSA Moves to Impose Hedge Fund Bonus Restrictions

The Financial Services Authority--the UK's financial regulating body--has moved to impose bonus rules on hedge funds. Initially it was thought that the FSA would give hedge funds a pass and only apply the restriction to banks. The proposal will require half of any bonus to be non-cash such as shares. Furthermore, 40% of this bonus will have to be distributed over 3 years and if it exceeds £500,000 then 60% must be deferred.
The U.K. Financial Services Authority plans to impose strict bonus rules on the country’s hedge funds, bringing Britain into line with recently-approved European Union restrictions.

The FSA said it would extend bonus rules that already apply to the country’s 27 largest lenders to more than 2,500 firms, including asset managers and hedge funds. Under the proposal, at least half of any variable remuneration must be paid in shares or some equivalent non-cash instruments. 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.

It is unclear exactly who will be covered by the new rules. The FSA said that those employees who “have a material impact on a firm’s risk profile” will have their bonuses subjected to the restrictions.

The regulator is welcoming comments on the proposals through October, and plans to implement the new runs on Jan. 1. Source

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