The EU has agreed on new rules curbing fund managers’ pay, requiring at least 40% of the bonus to be deferred for three years and half of all cash bonuses to be invested into managed assets in an attempt to better align manager and investor interests, reports John O’Donnell at Reuters.

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“We want to ensure that responsible remuneration policies are in place across the financial sector and that there are no loopholes for risky and dangerous trading practices,” said Arlene McCarthy, who helped draft the new rules. “The new rules will bring funds in line with EU bankers bonus rules, as there will be no guaranteed bonuses for fund managers and 40 percent of bonuses must be deferred.”

EU nations have 18 months to enact new bonus limits

The new rules won’t affect hedge funds or private equity because they are regulated separately, and member nations will have 18 months to put the new rules into effect locally. Some nations, including the UK, have criticized the rules, saying they will make it more difficult for them to compete with other international financial centers.

German lawmaker and advocate of the new limits on fund manager bonuses Sven Giegold said that “the stricter rules on depositaries will ensure fraudulent schemes, like the Madoff case, cannot occur in Europe,” though it’s not clear how restrictions on reported bonuses would actually stop someone from cooking the books.

Bankers already getting around bonus limits

The new rules for fund managers doesn’t impose a hard cap on bonuses like it does for bankers whose bonuses cannot exceed their annual base pay, but that cap has changed the mix of compensation packages more than it has actually reduced them.

HSBC chief executive Stuart Gulliver earned £5.5 million in bonuses on a base salary of £1.25 million last year, a ratio that would now be illegal. To make up for the difference, his base pay is being increased to £3 million so that the total package is roughly unchanged, reports Robert Peston for the BBC. Getting around the rules may involve juggling some numbers around, but that’s not something banking executives should have any difficulty with.

The lack of a hard cap for fund manager bonuses could mean that EU lawmakers realize that it hasn’t affected bankers’ pay packages as intended, and that there is no point trying to enforce an ineffective regulation, or it could be a sign that the balance of opinion is shifting against those who want to limit compensation in the financial industry.