The European Securities and Markets Authority (Esma) has allowed the use of proportionality in fund manager remuneration under Ucits and Aifmd regulation.
In the final set of guidelines for Ucits, Esma says that certain remuneration rules to be brought in as part of the regulation should not apply entirely to certain firms.
Doubt was cast on the ability to use the proportionality principle after the European Banking Authority began a review of its guidelines on the remuneration policy provisions of EU’s Capital Requirements Directive IV last year.
The trade body argued that there was no scope in Esma’s initial rules on pay under Ucits for proportionality to be applied to the legislation. The review opened a debate on the impact these changes would have on the asset management industry, especially for small firms.
However, in the finalised guidance Esma says it would be “inappropriate” for some fund managers to be subject “in all circumstances” to the requirements on the pay rules.
It says smaller fund managers, fund managers with simpler internal organisations or nature of activities, and fund managers whose scope and complexity of activities is more limited should not be subject to the remuneration rules.
However, the new guidelines do not include guidance on the possibility of disapplying certain specific requirements on the pay-out process.
ESMA also says that it would be “disproportionate” for the rules to apply to small amounts of variable remuneration or to staff where it would not result in an “effective alignment” of interests between the staff and the investors in the funds.
Esma has also called for “further legal clarity” on the issues, including potentially changing the relevant legislation.
Pinsent Masons senior practice development lawyer Graeme Standen says: “The EBA has, like Esma in this new publication, advocated amendments to CRD IV, to make it clear that proportionality can work in that way, even though the EBA and the European Commission consider that proper legal analysis of the current text of CRD IV would not permit this.
“As a result, hopefully both sets of guidance on Ucits and Aifmd might be updated to reflect changes to the underlying directives, before it comes into force at the start of next year.”