Published: 7th April 2016

Of Relevance to:
UCITS management companies; AIFMs


Remuneration Guidelines: UCITS V and AIFMD

UCITS V introduces the need for UCITS management companies to establish and apply remuneration policies and practices – SYSC 19E incorporates the nine UCITS remuneration principles (see Regulatory Roundup 73).

Last year ESMA produced a consultation paper on remuneration guidelines relating to UCITS V – see Regulatory Roundup 66 for details – inviting comments by 23 October 2015. The final report on the guidelines, which will apply from 1 January 2017, has now been published.

It may be recalled that in the consultation paper ESMA was of the view that the principle of proportionality should be maintained, including the possibility that some of the requirements might be disapplied. This was in contrast to the EBA’s view on proportionality in the context of CRD IV firms in that there was no scope for disapplication of any of the CRD IV remuneration principles.

The ESMA final report on UCITS V guidelines does not offer any guidance on the possibility not to apply certain of the remuneration principles against the background of uncertainty. Fortunately there is a “however” in that ESMA has issued a letter to European institutions setting out ESMA’s (positive) views on proportionality and calling for further clarity. The letter makes clear that ESMA believes that it would be inappropriate to apply “in all circumstances” (which suggests that there may, in some instances, be circumstances where it would be appropriate) to subject small fund managers, or fund managers whose internal organisation and/or activities are not regarded as complex to the requirements of the ‘pay-out process’ (captured in section 13.4 of the final guidelines and being the need to pay part of the variable remuneration in instruments, deferral etc.). The letter also raises the question of applying lower thresholds whenever minimum quantitative pay-out thresholds are set e.g. the requirement to defer at least 40% of variable remuneration.

Until such time as ESMA’s letter is considered, and the issues raised are addressed, the possibility of disapplying certain remuneration principles under the concept of ‘proportionality’ remains unclear.

However there is a bit of breathing space for firms – specifically small or non-complex fund managers – in that whilst UCITS V was implemented on 18 March 2016, the transitional provision in SYSC TP 3 (Part B) means that a UCITS management company need not apply the UCITS remuneration principles to any awards of variable remuneration until it commences its first full performance year starting on or after 18 March 2016.

Although the remuneration guidelines are mainly concerned with UCITS, Annex IV (page 103) concerns AIFMD remuneration guidelines and deals with the application of the remuneration rules in a group context. The amendment also applies from 1 January 2017.

The current AIFMD guidelines will not be amended to bring them into line with the UCITS guidelines pending clarification on the application of the proportionality principle.

Key Dates

  • Remuneration Guidelines apply from 1 January 2017
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