LONDON Feb 10 Managers of the European Union's
trillion-euro money market funds, which give access to
short-term finance at low interest rates, will need to show
their pay packets do not encourage too much risk-taking under a
proposal from the bloc's lawmakers.
It marks the latest EU attempt to extend pay rules for
bankers to other parts of the financial sector in a bid to avoid
the lure of a big bonus encouraging people to take on more risk.
Money market funds in the EU are mainly based in France,
Ireland and Luxembourg, with Black Rock and Legal &
General among the leading players.
They are heavily used by banks for short-term funding and by
companies to park cash and earn interest.
The European Parliament will vote in committee on Feb. 17 on
a draft law to shine a light on money market funds and make a
run on them in a financial crisis less likely.
The draft law was authored by the bloc's European Commission
but lawmakers are discussing adding a new section to make pay
more transparent, though stopping short of an actual cap on
bankers' bonuses that is now EU law.
"Money market funds shall establish and apply remuneration
policies and practices that are consistent with and that promote
sound and effective risk management and do not encourage
risk-taking which is inconsistent with the risk profiles, rules
or instruments of incorporation of the MMF they manage," the
proposed new section seen by Reuters states.
"The remuneration policies and practices shall cover fixed
and variable components of salaries and discretionary pension
benefits," it adds.
The likelihood of the extra rules making it to the final
law, which would need backing from EU member states, will likely
depend on whether an attempt to impose a similar regime on
managers of mutual funds is successful.
A separate draft law to revise the bloc's mutual funds rules
is being finalised.
Ahead of next week's vote, lawmakers meet privately this
week to seek cross-party agreement on two divisive issues.
There is disagreement over whether some money market funds
must have a safety buffer of capital. The role of the European
Securities and Markets Authority, an EU watchdog, in supervising
money market funds is also causing splits among lawmakers.