The guidelines, which apply from 1 January 2017, seek to clarify the concepts of disclosure, governance, and risk alignment in respect of remuneration; in advance of this date, non-EU investment managers of UCITS should prepare for discussions with UCITS managers.
On 31 March, the European Securities and Markets Authority (ESMA) published its report setting out the final guidelines (Guidelines) on sound remuneration policies under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.
The Guidelines clarify the remuneration policy requirements for self-managed UCITS and UCITS management companies (ManCos) to implement for staff whose professional activities have a material impact on the profile of the UCITS (Identified Staff).
In summary, the Guidelines provide that
Customarily, a UCITS/ManCo delegates investment management functions to another entity, and the Guidelines will be applied on a “look-through” basis to such delegates. In these instances, the UCITS/ManCo must ensure that
Any contractual arrangements should cover any payments made to a delegate’s Identified Staff in respect of compensation for the investment management activities on behalf of the UCITS/ManCo.
Investment management delegates to whom the Markets in Financial Instruments Directive (MiFID) and/or Capital Requirements Directive (CRD) IV apply are considered to be subject to equivalent remuneration rules to the Guidelines. Therefore, delegates within the European Union will satisfy the first condition described above.
Delegates of UCITS/ManCos based outside of the European Union will need, in lieu of an equivalent local regulatory regime on remuneration, to demonstrate contractual compliance with the Guidelines. However, thought should also be given to whether there is scope to dis-apply some of the requirements of the Guidelines based on the specific set of circumstances. For instance, do the activities performed by the non-EU delegate have little/no scope to affect the risk profile of UCITS or, based on the grounds of proportionality discussed above, is it appropriate to dis-apply aspects of the Guidelines such as the pay-out process rules.
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