On 31 March 2016, the European Securities and Markets Authority (ESMA) published its final Guidelines on sound remuneration policies under the UCITS Directive and AIFMD. The Guidelines clarify the obligations under the UCITS Directive for management companies regarding the establishment and application of remuneration policies for identified staff and will apply from 1 January 2017. The Guidelines are not materially different from the draft guidelines upon which ESMA consulted in 2015 (see our previous article here), save that the final Guidelines (unlike the draft) do not include guidance on the dis-application of certain requirements on the pay-out process.

ESMA did not include such guidance in the final report due to “recent work and legal analysis … which have called into question the existing understanding of the proportionality provisions” under the UCITS and AIFM Directives. As a result, ESMA has written to the European Commission and suggested that further clarity on the proportionality principle and cross-sectoral alignment is required. In this letter ESMA also sets out its opinion that having regard to their size, internal organisation, and the nature and scope of their activities, it would be inappropriate for certain fund-managers to be subject to the requirements of the pay-out process in all circumstances.

The AIFMD remuneration guidelines have also been amended to reflect the application of remuneration rules in a group context. These guidelines will also apply from 1 January 2017; however they will not be amended in line with the UCITS Guidelines, pending further clarification on the proportionality principle.  

Contributed by Audrey Giles.