On July 23, the European Securities and Markets Authority (ESMA) published a consultation paper assessing new guidelines on sound remuneration policies under the UCITS V Directive and the Alternative Investment Fund Managers Directive (AIFMD). The proposed guidelines in the consultation paper are based on those that ESMA issued in 2013 under the AIFMD—and the proposals for UCITS V management firms are broadly comparable. The consultation paper includes various proposals for EU-based UCITS managers, including:

Management companies as part of a group. ESMA has proposed that in a group context, non-UCITS sectoral prudential supervisors of group entities may deem certain staff of the UCITS management company that is part of that group to be identified staff for the purpose of their sectoral remuneration rules.

Defining performance fees. ESMA has proposed a common definition of performance fees based on an IOSCO final report on elements of international regulatory standards on fees and expenses of investment funds.

Application of different sectoral rules. ESMA has made proposals on how different rules, such as those set out in the AIFMD and in the CRD IV, should apply where employees or other categories of personnel perform services subject to different sectoral remuneration principles.

Application of the rules to delegates. ESMA proposes that management companies should be prevented from circumventing the remuneration rules through the delegation of activities to external service providers.

Payment in instruments. ESMA has given guidance on how to comply with the rules on the payment of variable remuneration in instruments under the UCITS Directive.

Proportionality. ESMA has included scope for EU jurisdictions to use the principle of proportionality to disapply certain of the rules in exceptional circumstances, in line with the AIFMD approach.

Annex V of the Consultation Paper also includes proposals from ESMA for revisions to the remuneration guidelines for EU-based AIFMs, and includes a focus on circumstances where an AIFM is part of a wider corporate group structure.

The consultation period closes on October 23. ESMA has stated that it intends to publish finalized UCITS remuneration guidelines by the first quarter of 2016 (i.e., approximately three months in advance of the March 18, 2016 deadline by which EU countries must have UCITS V transposed into national law across the EU).

ESMA’s consultation paper and associated press release are available here.