Alternative Investment Management Association Representing the global hedge fund industry
Excessive risk-taking in the financial sector has been identified as one of the contributing factors to the financial crisis that began in 2007. Supervisors and regulatory bodies, including the G20 and the European Banking Authority, have concluded that unsound remuneration practices have been a contributory factor to such risk-taking. Since 2009, significant work has been undertaken in this area. The internationally agreed and endorsed principles of the Financial Stability Board for sound compensation practices are of particular importance. At EU level, rules on remuneration have been developed in the Capital Requirements Directive, much of which has been taken up in the Alternative Investment Fund Managers Directive and will also be introduced in the UCITS Directive. Remneration guidelines for MiFID investment firms have also been introduced. In the USA, the Dodd-Frank Act requires that rules prohibiting inappropriate incentive-based payment arrangements are adopted.