Directive 2014/91/EU (the “UCITS V”) is due to come into effect on 18 March, 2016 and will amend Directive 2009/65/EC (the “UCITS Directive”). Amongst other matters, it sets down rules which a UCITS Management Company must comply with when establishing and applying a remuneration policy for certain categories of its staff. UCITS V also provides that the European Securities and Markets Authority (“ESMA”) shall issue guidelines addressed to competent authorities or financial market participants concerning the application of the remuneration principles set out in UCITS V, which is what ESMA is now consulting on.
On 23 July, 2015, ESMA issued a consultation paper (the “Consultation Paper”) with respect to on proposed Guidelines on sound remuneration policies under the UCITS V Directive and AIFMD (the “Guidelines”).
This Consultation Paper is designed to assist in the development of the Guidelines and details ESMA’s formal proposals in this respect. In addition, it proposes a specific and focused revision of the Guidelines on sound remuneration policies under the AIFMD (ESMA/2013/232) (“AIFMD Remuneration Guidelines”), which were published on 3 July 2013.
The Guidelines are designed to ensure the coordinated and consistent application of the remuneration provisions within the EU and provide guidance on issues such as proportionality, governance of remuneration, requirements on risk alignment and disclosure.
Once the Guidelines are approved, they will apply to UCITS management companies and national competent authorities.
The Key Elements of the Guidelines
The key elements outlined in the Guidelines and the Consultation Paper include:
Article 14(b)(i) of the UCITS Directive provides that: “When establishing and applying the remuneration policy referred in Article 14(a), management companies shall comply with the following principles in a way and to the extent that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities ….”.
(ii) Management companies as part of a group
The Guidelines set out a common definition of performance fees based on the 2004 IOSCO Final report on elements of international regulatory standards on fees and expenses of investment funds. It is important to note that the ‘performance fees’ being discussed by ESMA in the Guidelines are those which are “payments made directly by the management company or the UCITS itself for the benefit of identified staff”. It does not capture or apply to performance fees that are paid by a UCITS to a UCITS management company itself, although it must be noted that if a UCITS pays a performance fee to a UCITS management company and that is to benefit the identified staff of the UCITS management company, then the principles and rules would apply to that performance fee.
Revisions to the AIFMD Remuneration Guidelines
The Consultation Paper also proposes a revision of the AIFMD Remuneration Guidelines. The purpose of the revision is to clarify that in a group context, non-AIFM sectoral prudential supervisors of group entities may be permitted to deem certain staff of an AIFM in that group to be identified staff for the purpose of their sectoral remuneration rules.
The period for feedback on the Consultation Paper and the Guidelines will close on 23 October, 2015. Thereafter, ESMA will consider any feedback which has been received with respect to the Consultation Paper and the Guidelines and has indicated that it will aim to finalise and publish the UCITS Remuneration Guidelines and a final report by Q1 2016 ahead of the transposition deadline for UCITS V, being 18 March 2016.
The final report is expected to also include the revision of the AIFMD Remuneration Guidelines as proposed in the consultation paper.
We recommend that UCITS management companies pay attention to these Guidelines and take the opportunity to participate in the consultation process, either directly via the ESMA website or through relevant industry representative bodies or their external advisors.
– Anticipated date for issuing of Final Report on Guidelines: Q1 2016
– Date of transposition of UCITS V: 18 March, 2016
– Responses to the Consultation Paper can be submitted via the ESMA website.
This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.
Copyright Notice: © 2013 Dillon Eustace. All rights reserved.