Remuneration Policies and AIFMD

Firms considering the impact of the Alternative Investment Fund Managers Directive (AIFMD) will be aware that Article 13 requires the AIFM to have in place remuneration policies and practices for various categories of staff including senior management and risk takers. Such remuneration policies and practices have to be in accordance with Annex II of the AIFMD. In addition, Article 22 requires that the annual report that has to be provided by the AIFM for each EU AIF it manages, or for any AIF that it markets in the Union, has to include details of the total remuneration (fixed and variable) paid by the AIFM to its staff and also to break down that figure by senior management and relevant members of staff.

ESMA has produced a consultation paper on providing guidelines on “sound remuneration policies under the AIFMD” (again, if you experience problems with the ESMA link on the left, please copy and paste http://www.esma.europa.eu/system/files/2012-406.pdf into your browser).

Firms will be relieved to learn that the AIFMD remuneration requirements are largely inspired by the provisions of the Capital Requirements Directive and as such should be broadly in line with the Remuneration Code in SYSC 19A. The ESMA Chairman has stated that future guidelines will ensure consistency of the rules for remuneration across financial sectors.

The scope of the guidelines covers the expected areas including the concept of fixed and variable remuneration, and when carried interest will and will not be subject to the AIFM remuneration requirements; the concept of deferring variable remuneration and the split between cash and instruments; and the types of staff that will be ‘identified staff’. The definition of the latter is being broadly similar to that of ‘Remuneration Code Staff’ in SYSC 19A.3.4 save that having a material impact on the risk profiles of the AIFs as well as on the AIFM itself is key here.

It is intended that the principle of proportionality – which is applied when operating the current Remuneration Code – will also extend to the AIFMD remuneration principles.

Annex II of the paper incorporates a mapping of the AIFMD requirements to the guidelines. You will have to trawl through to Annex VII to read the draft guidelines.

The consultation runs until the end of September, with a final report being published by the end of the year ready for the AIFMD transposition deadline of 22 July 2013.

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