The European Securities and Markets Authority
("ESMA") published its final guidelines
on sound remuneration policies under the UCITS Directive and AIFMD
(the "Guidelines") on March 31, 2016
accompanied by a letter to the European Commission, the European
Parliament and the Council of the European Union dated March 30,
2016 on the proportionality principle and remuneration rules in the
financial sector (the "Letter").
The principle of proportionality is very important as it gives
the necessary flexibility with respect to the rather rigid rules on
variable remuneration in cases where such rules do not seem
appropriate. End of last year the European Banking Authority
("EBA") criticised the huge diversity of
national rules regarding the application of proportionality,
including the waiving of requirements, which in EBA's view has
led to an uneven playing field between institutions across the EU
and hence in the opinion of EBA legislative action should be taken
in order to clarify and ensure that the CRD remuneration
requirements are applied consistently across the EU.
In light of those discussions ESMA's publication regarding
the remuneration guidelines for UCITS managers and AIFMs was
expected with interest.
The outcome can be summarized as follows:
ESMA remained neutral on the
interpretation of proportionality and so the existing guidelines on
sound remuneration policies under the AIFMD (ESMA/2013/232) dated
July 3, 2013 ("AIFMD Remuneration
Guidelines") remain unchanged with respect to
In its Letter to the EU institutions
ESMA helpfully underlines and recognizes that asset managers should
be treated differently from banks and that the
neutralisation of certain of the principles on variable
remuneration should remain possible on a case by case
However, in line with the EBA
position, ESMA suggests that legislative changescould help clarify and ensure a consistent
application of the remuneration requirements across Europe.
Finally, unrelated to the
proportionality principle, it is worthwhile noting one helpful
statement where the Guidelines now clarify that the remuneration
rules under the AIFMD (and NOT under CRD IV) apply also in the
context of providing the "ancillary services" under
Article6 (4) of the AIFMD (i.e. the MiFID services such as
individual portfolio management, investment advice etc.).
We have summarized hereafter in more detail ESMA's
explanations in the Letter regarding the – in practice very
important – proportionality principle.
1. Application of proportionality principle
In the Letter ESMA highlights that a key element of the UCITS
Remuneration Guidelines and the AIFMD Remuneration Guidelines
relates to the proportionality and, in particular, whether
proportionality can lead to a situation in which specific
requirements on the pay-out-process (i.e. the requirements on
variable remuneration in instruments, retention, deferral and
ex-post incorporation of risk for variable remuneration) may not
have to be applied.
Relating to the application of the proportionality principle and
in particular to the pay-out-process ESMA clarifies that it
considers the following scenarios should remain possible under the
UCITS Remuneration Guidelines and the AIFMD Remuneration Guidelines
in certain situations:
the disapplication of requirements on
the pay-out-process; and
the application of lower thresholds
whenever minimum quantitative thresholds are set for the pay-out
requirements (e.g. the requirement to defer at least 40% of
2. Fund managers subject to proportionality principle
In order to achieve an effective alignment of interests between
the fund managers' staff and the Investors, ESMA states the
following cases where fund managers should not be subject to the
requirements on the pay-out process:
Smaller fund managers (in terms of
balance sheet or size of assets under management);
Fund managers with simpler internal
organisation or nature of activities; or
Fund managers whose scope and
complexity of activities is more limited.
Further, ESMA considers that the remuneration requirements
should not apply to:
relatively small amounts of variable
certain staff when this would not
result in an effective alignment of interests between the staff and
the investors in the funds managed by the staff.
3. Call for legislative changes
ESMA suggests legislative changes in the relevant asset
management legislation to provide for more clarity and a more
consistent application of the remuneration requirements. It remains
to be seen if and to what extent the European legislator will reply
to this call. It is, however, not expected that such changes will
come in the near future.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A trustee in bankruptcy's rights to obtain a possession order and order for sale against a bankrupt's property will not be suspended indefinitely even where there are exceptional circumstances.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).