ESMA publishes final guidelines on sound remuneration policies under UCITS and AIFM Directives


In its newest report, ESMA sheds light on the guidelines relating to the remuneration policies and practices for management companies and their identified staff.

On 31 March 2016, the European Securities and Markets Authority (ESMA) published its final guidelines on the remuneration policies for management companies and their identified staff (the Guidelines). These Guidelines refer to the remuneration policies under the Directives that regulate the undertakings for collective investment and their managers, i.e. the Undertakings for Collective Investment in Transferable Securities Directive (Directive 2009/65/EC – UCITS Directive) and the Alternative Investment Fund Managers Directive (Directive 2011/61/EU – AIFMD). Since the Remuneration Guidelines for AIFMD were already published in 2013 (ESMA/2013/232 – AIFMD Remuneration Guidelines), the main part of these Guidelines relates to the UCITS Directive. For the AIFMD Remuneration Guidelines, only one small change was made, being the applicability for AIFMs that are part of a group as a subsidiary of a credit institution.

With these Guidelines, ESMA fulfils its obligation under article 14a(4) of the UCITS Directive to issue guidelines on the application of the remuneration principles set out in article 14b of the UCITS Directive.

The purpose of these Guidelines is to ensure common, uniform and consistent application of the remuneration provisions on remuneration of the UCITS Directive. The Guidelines apply to management companies as defined in article 2(1)(b) of the UCITS Directive and to competent authorities, as well as to investment companies that have not designated a management company authorised pursuant to the UCITS Directive. More specifically, they apply in relation to the remuneration policies and practices for management companies and their identified staff. Annex II of the Guidelines provides details on which guidelines apply to management companies as a whole and which apply only to their identified staff.

On the topic of the application of proportionality, ESMA significantly defers from the draft Guidelines it published on 23 July 2015. ESMA has amended its draft Guidelines in order to remain silent on the extent to which proportionality can lead to the disapplication of the ‘Pay-out process rules’. Instead, ESMA has now published a separate letter addressed to the European Commission that sets out its views on proportionality and the rationale for these, which also encourages that clarification be provided on this issue by the European Commission. This is distinct from the approach ESMA previously adopted for AIFMD.

Furthermore, ESMA covers numerous topics, e.g.:

  • how to identify the categories of staff that should be seen as identified staff under these guidelines;
  • how the remuneration policy should be designed and approved, and how the remuneration committee should be set up and composed and what its role should be;
  • general and specific requirements regarding risk alignment, which includes (but is not limited to) specifications concerning severance pay and risk alignment of variable remuneration.

The Guidelines will apply as from 1 January 2017.


Draft legislation: Guidelines on sound remuneration policies under the UCITS Directive and AIFMD