As per a new set of regulations that the European Commission is currently considering, hedge fund managers will need to justify their earnings and offer substantial proof that they do not lead to excessive risk-taking. Lately, the hedge funds market and other financial sectors have raised much suspicion among politicians because of their secret nature of working, and because of that, EU is now scrutinizing the current regulations for the industry and looking at some new developments.

The first draft of the proposed regulations, which was shared on Friday, details a new pay code for managers of hedge funds that "discourages golden-handcuff payouts to retain high-fliers", and also demands that over 40% of bonus payout to managers be delayed for a minimum of three years. The new pay code proposed by EU seems more like the one followed for bankers, and demands that there be a balance between "the amount hedge funds or private equity managers get paid in salary and bonus".

"Member states shall require Alternative Investment Fund Managers to have remuneration policies that do not encourage excessive risk-taking", reads the draft.

The new regulations have come after weeks of discussions between authorities of all European nations and seem to be an important and much needed step in the current times when the economy is slowly trying to recover from the recession hurt.