Irish Funds (IF), the representative body of the Irish funds industry, has published its response to ESMA’s consultation on its guidelines on sound remuneration policies under the UCITS Directive and AIFMD. 

Proportionality

A number of issues are addressed in the IF response, primarily the application of the principle of proportionality to justify the disapplication of certain of the remuneration rules. IF supports ESMA’s approach to proportionality and, in particular, the intention to draw a distinction between the asset management industry and the banking industry. IF is of the view that it would be incorrect to apply remuneration policies designed to constrain excessive risk-taking in the banking sector to the asset management framework and, in particular to remove the ability to have regard to the nature, scale and complexity of the particular entity. IF is therefore of the view that the final Guidelines should allow for the application of proportionality on the basis of:

  • The type of investment strategies pursued by the relevant UCITS, in particular the extent to which the UCITS may employ leverage and / or invest in derivatives for investment purposes
  • The complexity of the assets in which the UCITS invests, their liquidity, credit quality and risk profile
  • The extent to which a member of staff of a delegate is engaged in portfolio management activities which have a material impact on the risk profile of the UCITS

Categories of identified staff

IF are of the view that the staff of a delegate investment manager should be excluded from the scope of "identified staff" where the UCITS is a low risk equity or money market fund that does not engage in derivatives for investment purposes and does not engage in leverage to any significant degree. Accordingly, the final Guidelines should include the following additional criteria upon which a management company or its delegate may rely to exclude staff from the scope of "identified staff":

  • The type of investment strategies pursued by the relevant UCITS, in particular the extent to which the UCITS may employ leverage and/or invest in derivatives for investment purposes
  • An assessment as to the complexity of the assets in which the UCITS invests, their liquidity, credit quality and risk profile
  • An assessment of the investment objective of the UCITS, with particular emphasis on whether the objective is to simply replicate the constituents of a benchmark index

Transitional period

IF has called for a transitional period of at least one year following the publication of the final Guidelines (i.e. to 18 March 2017).