UCITS V Update

ESMA Guidelines on sound remuneration policies under the UCITS Directive and AIFMD
The European Securities and Markets Authority (ESMA) published its final Guidelines on sound remuneration policies under the UCITS Directive and AIFMD. The UCITS Remuneration Guidelines provide further detail on the requirements under the UCITS Directive for management companies when establishing and applying a remuneration policy for key staff. The UCITS Remuneration Guidelines do not materially vary from the draft contained in the consultation (other than in respect of proportionality as discussed below). They aim to ensure a convergent application of these provisions and provide guidance on the governance of remuneration, requirements on risk alignment and disclosure. The UCITS Remuneration Guidelines will apply to UCITS management companies and national competent authorities from 1 January 2017. ESMA also issued a related press release.

Proportionality
The issues concerning proportionality have not yet been finally resolved. In fact, ESMA has written to the European Commission, European Council and European Parliament on the proportionality principle and remuneration rules in the financial sector and suggested that further legal clarity is needed. ESMA decided did not include in the final UCITS Remuneration Guidelines any guidance on the possibility not to apply certain specific requirements on the pay-out process set out in the UCITS Directive though it did not rule this out. In its letter to the EU Commission ESMA stated that it "believes that it would be inappropriate for the following fund managers to be subject in all circumstances to the requirements on the pay-out process:

i) smaller fund managers (in terms of balance sheet or size of assets under management);

ii) fund managers with simpler internal organisation or nature of activities; or

iii) fund managers whose scope and complexity of activities is more limited.

ESMA also considers that it would be disproportionate to apply the requirements to relatively small amounts of variable remuneration and to apply certain requirements to certain staff when this would not result in an effective alignment of interests between the staff and the investors in the funds."

AIFMD Remuneration Guidelines
The amended AIFMD guidelines will come into force on 1 January 2017. The amendment to the AIFMD guidelines relates to the section of these guidelines dealing with the application of the remuneration rules in a group context and is intended to acknowledge the potential outreach of the CRD rules in a banking group. The current AIFMD Guidelines will not be further amended to bring them into line with the UCITS Guidelines pending clarification on the application of the proportionality principle.

Delegated Regulation supplementing UCITS V on obligations of depositaries
On 24 March 2016, European Commission Delegated Regulation (EU 2016/438) supplementing the UCITS V Directive (2009/65/EC) with regard to obligations of depositaries was published in the Official Journal of the EU (OJ). The Commission adopted the Delegated Regulation on 17 December 2015. It comes into force on 12 April 2016 (which is 20 days after its publication in the OJ) and will apply from 13 October 2016.

UCITS Infringement reporting form template
ESMA published its UCITS Infringement reporting form template. This is to be used to report a potential or actual infringement of national provisions transposing the UCITS Directive.

For more information please contact Nollaig Greene or a member of the Asset Management & Investment Funds Team.

Date published: 1 April 2016