FSA targets hedge fund and private equity pay

The FSA has launched a consultation on regulations for hedge funds and private equity firms that will form the basis for tough new rules on pay.

The 102-page discussion paper is part of the regulator's attempt to prepare for new rules which will shake up regulation across Europe for all alternative investment fund managers, the Telegraph reports. The move comes after the FSA expanded its code for bankers' bonuses to include hedge funds last year. 

PwC partner Jon Terry said: "Banks, credit institutions and investment firms are already subject to regulation of their remuneration arrangements, and the FSA's discussion paper is the first step for introducing similar rules to so-called alternative businesses. Given the links between investment management and alternatives businesses, it makes sense for a similar regime for all."

In 2010 Brussels approved the Alternative Investment Fund Managers Directive (AIFM) which gave Paris-based ESMA the power to set rules for hedge funds and private equity firms, including regulating their pay and access to EU investors.

The FSA paper states: "The purpose of the remuneration provisions is that AIFMs manage risk and control risk-taking behaviour by reducing the potential adverse impact of poorly defined remuneration schemes."

"We are not looking to limit individual levels of pay, as that is not our mandate, but we believe that firms must have remuneration policies that are consistent with sound risk management."

AIFM will come into force next summer and will set out formal guidlines for pay later this year. The deadline for responses to the FSA's consultation is 23 March.