As previously reported, in March 2016 the European Securities Markets Authority ("ESMA") published its final report on Guidelines on sound remuneration policies under the UCITS Directive. This final report, (unlike the draft version) did not include guidance on the dis-application of certain requirements on the pay-out process.

ESMA stated at the time that it did not include such guidance in its final report due to work and legal analysis that had been undertaken, which called into question "the existing understanding of the proportionality provisions" under the UCITS Directive. Accordingly, ESMA wrote to the European Commission ("Commission") suggesting that further clarity on the proportionality principle and cross-sectoral alignment was required.

On 14 October 2016, ESMA published the finalised Guidelines on sound remuneration policies under the UCITS Directive ("Guidelines"), which are unchanged from those published in the final report in March. It would seem therefore that the letter written by ESMA to the Commission has not yet resulted in a change to the Guidelines that would provide clarity as to the circumstances in which the relevant requirements on the pay-out process can be dis-applied.

Next steps

National Competent Authorities (NCAs) must notify ESMA as to whether they comply or intend to comply with the finalised Guidelines, with reasons for non-compliance, within two months. ESMA will publish a compliance table based on the responses from the NCAs.

The finalised Guidelines apply from 1 January 2017. However, it should be noted that the guidelines relating to variable remuneration first apply to variable remuneration payable in respect of the first full performance period after 1 January 2017. For example, a management company whose accounting period ends on 31 December should first apply the variable remuneration guidelines to payments relating to the 2017 accounting period.