UK: Remuneration In Investment Management | The Highs - And Lows - Of The Summer’s Developments

Last Updated: 27 September 2013
Article by Helen Beck

Most Read Contributor in UK, August 2017

As summer draws to a close, it seems a good time to reflect on the many events affecting remuneration in the investment management industry in recent months. It's certainly been a busy summer for the regulators – from an EBA consultation paper on Identified Staff under CRD IV through to the recent FCA consultation on the implementation of the AIFMD guidelines.

This article, written by Helen Beck - Partner, Financial Services Reward, takes you through some of the highs – and lows – of the summer's developments. For a more detailed summary, please see our recent summer newsletter


Identified Staff

One of the 'lows' occurred when the EBA released a consultation paper in May proposing a stricter definition of 'Identified Staff' under CRD IV.

At a public hearing on this consultation paper held in July, comments were unsurprisingly made on the prescriptive nature of the proposed approach. In particular, there were widely held concerns that the automatic categorisation of anyone earning over EUR 500k or with variable pay of over EUR 75k and which is 75% or more of salary may inadvertently catch non risk takers.

The EBA agreed to consider each of these points and we are awaiting their final technical standards, expected later this year. Let's hope they make a good Christmas present!


The gloom was somewhat alleviated in early August when the FCA set out how it proposes to deal with certain investment firms currently subject to CRD III but who will not be subject to the CRD IV remuneration requirements.

For these firms, the welcome news was that the additional remuneration requirements of CRD IV will not apply to them. Instead, the FCA intends to continue to apply the existing Remuneration Code and existing Pillar 3 disclosure requirements to them.

All other firms currently within scope of CRD III will be subject to an updated Remuneration Code implementing all of the CRD IV requirements – we don't yet know how proportionality will be applied to the new provisions such as the bonus cap.


To round the summer off, the FCA released a consultation paper, which proposes draft guidance on their "AIFM Remuneration Code" and ESMA's guidelines.

The FCA has proposed a pragmatic approach, which will generally be welcomed by the industry. For full details, please see our previous post, but some of the key highlights are:

  • the proposal for the AIFM Remuneration Code to only apply to the first full performance period after the fund manager becomes authorised;
  • the acceptance that company shares can in some circumstances be used in place of fund units; and
  • the policy, in line with the CRD III Remuneration Code, that the strictest pay-out process rules will not generally apply to those whose total remuneration is less than £500k and where less than 33% of this is delivered as variable remuneration.

While the FCA's approach to the ESMA guidelines will cause many investment managers to breathe a sigh of relief, firms should continue to bear in mind the key themes across the regulations when structuring their reward policies and practices to align with their fund and business profile. These include ensuring that remuneration does not promote risky behaviours via appropriate remuneration policies and appropriate governance.


In July, the European Parliament voted on the draft text of the UCITS V Directive. This Directive will introduce remuneration rules for UCITS fund managers similar to those under the AIFMD.

Many UCITS managers will be celebrating the fact that the approved text removed the provision to introduce a cap limiting the ratio of variable remuneration to the fixed component to 1:1 and that the minimum proportion of variable remuneration which needs to be deferred remains at 25%, contrary to initial reports from the European Parliament stating that it had been raised to 40%.

The draft text will now be fine-tuned into the final rules via three-way talks between the European Parliament, EU member states and the European Commission.


Some of the developments will have been welcome news to the investment management industry – particularly the proposal from the FCA to remove an estimated 1,000 investment firms from the scope of the bonus cap under CRD IV. The removal of the bonus cap from the proposed UCITS V remuneration regulations has also been regarded as a positive result by the industry.

Other developments will not have been so welcome – for example the strict quantitative criteria proposed by the EBA for determining Identified Staff under CRD IV, which is likely to have a significant impact on the number of staff subject to the remuneration requirements of CRD IV.

Whether welcome or not, the raft of developments mean that firms will now be in a better position over the coming months to plan any changes that they may need to make to their remuneration arrangements.

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.

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