On 17 February 2014 the European Securities and Markets Authority ("ESMA") published its first Q&A on the application of AIFMD (the "Q&A"). The purpose of the Q&A is to promote common supervisory approaches and practices in the application of AIFMD and operates in addition to the Q&A on AIFMD issued by the European Commission. ESMA will review the Q&A on a regular basis to identify if there is a need to convert some of the material into ESMA guidelines. ESMA intends to edit and update the Q&A on an ongoing basis when new questions are received from the general public and Member State regulators.
CLARIFICATIONS ON THE APPLICATION OF THE REMUNERATION GUIDELINES
The Q&A addresses, in particular, questions in relation to: (i) the timing of the application of the remuneration rules set out in the ESMA Guidelines on sound remuneration policies under the AIFMD (ESMA/2013/232) (the "Remuneration Guidelines") and; (ii) the application of the Remuneration Guidelines to the delegation of portfolio management or risk management activities.
TIMING OF THE GENERAL APPLICATION OF THE REMUNERATION GUIDELINES
The Q&A states that the Remuneration Guidelines will generally apply from the date of an AIFM's authorisation under AIFMD. However, a transitional period will apply in respect of the rules on variable remuneration.
TIMING OF THE APPLICATION OF THE RULES ON VARIABLE REMUNERATION
For AIFMs performing activities before 22 July 2013 that submit an application for authorisation under AIFMD between 22 July 2013 and 22 July 2014, the rules on variable remuneration apply to payments to "identified staff"1 for the first full performance period after the AIFM becomes authorised. For example, for an existing AIFM whose accounting period ends on 31 December and which obtains an authorisation between 1 January 2014 and 22 July 2014, the rules on variable remuneration will apply to the calculation of payments relating to the 2015 accounting period.
For AIFMs not performing activities before 22 July 2013 and obtaining authorisation under AIFMD after 22 July 2013, the rules on variable remuneration apply to payments to identified staff for the first full performance period after the period in which the AIFM submits its application for authorisation.
CONTRACTUAL ARRANGEMENTS WITH DELEGATES
With regard to the application of the Remuneration Guidelines in respect of the delegation of portfolio management or risk management activities, the Q&A clarifies which staff of a delegate are required to be covered by "appropriate contractual arrangements" that ensure that there is no circumvention of the remuneration rules set out in the Remuneration Guidelines. Such contractual arrangements must only be in place in respect of the delegate's identified staff that have a material impact on the risk profile of the AIFs it manages as a result of the delegation and only in respect of the remuneration for such delegated activities. While this is helpful clarification, the analysis of what constitutes a "material impact" on the risk profile is key in determining which staff of a delegate are within scope. The Q&A does not provide detail on this.
CRD AS AN EQUALLY EFFECTIVE REGULATORY REGIME
The Q&A states that, where the identified staff of the delegate are subject to the CRD rules, the delegate can be considered to be subject to regulatory requirements on remuneration that are equally effective as those applicable under the Remuneration Guidelines.
CLARIFICATIONS PROVIDED IN OTHER AREAS
The Q&A also provides the following clarifications:
- AIFMs that wish to market new sub-funds of an AIF in a Member State where that AIF has already been notified, should undertake a new notification procedure via their competent authority in respect of new sub-funds.
- Where a non-EU AIFM reports information to the national competent authorities of a Member State under Article 42 of AIFMD, only the AIFs marketed in that Member State have to be taken into account for the purposes of the reporting. It remains to be seen whether this is an optimal outcome for AIFMs as this suggests that AIFMs will now need to segregate the reporting they provide along the lines of the AIFs marketed in particular jurisdictions. Given the volume of data required, some AIFMs view a consolidated report covering all AIFs as being a simpler method of reporting, albeit that certain AIFs may not be relevant to a particular Member State regulator.
1 The term "identified staff" is defined in the Remuneration Guidelines as: "categories of staff, including senior management, risk takers, control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the AIFM's risk profile or the risk profiles of the AIF that it manages and categories of staff of the entity(ies) to which portfolio management or risk management activities have been delegated by the AIFM, whose professional activities have a material impact on the risk profiles of the AIF that the AIFM manages."
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