The most recent version of the UCITS V directive introduces remuneration rules that are equivalent to the existing rules for managers of alternative investment funds. This means that managers of UCITS can start preparing for new rules based on the experiences of AIFMs.
Remuneration of staff in the financial industry has been a hot topic the last few years. After the publication of a recommendation by the European Committee in 2009 regarding remuneration policies, amendments have been made to different EU directives which regulate banks, investment firms and, more recently, alternative investment fund managers (AIFMs). In the Netherlands, the Minister of Finance also initiated a consultation on new remuneration rules for the financial industry in December 2013 (see also In context of 9 December 2013). The European supervisor (ESMA) also issued guidelines on remuneration for AIFMs.
Managers of UCITS are not subject to remuneration rules (yet). UCITS are investment funds which are designed to be offered to non-professional investors and must comply with strict rules for the purpose of investor protection, such as restrictions to the investment policy.
Since July 2009, the EU is preparing amendments to the UCITS directives. The amendments are known as UCITS V and include rules regarding remuneration. UCITS V is expected to be approved in Q1 2014.
Although it was expected that the remuneration rules in UCITS V would be equivalent to the remuneration rules introduced to AIFMs, different rules have been proposed during the negotiations on UCITS V. Such proposals included bonus caps, transparency requirements and categories of staff to which these rules would apply. Most of these proposals have been rejected during the process of negotiations between the European Parliament, the Council and the European Committee.
In recent weeks another proposal was rejected, being the proposed obligation to include details on remuneration in the key investor information document (KIID), which is two pages of information for potential investors about the UCITS. Currently, one of the last discussion points relates to the applicability of the remuneration rules to third-party service providers to which managers of UCITS have delegated certain tasks. In the next few weeks it will be decided whether these rules will apply.
It is now likely that the UCITS V remuneration rules will be almost fully equivalent to the AIFM remuneration rules. Although ESMA has not issued any guidelines on remuneration for UCITS yet, it is also likely that these will be equivalent to the guidelines issued for AIFMs. This would give managers of UCITS the opportunity to prepare for the introduction of these rules (expected in 2016) based on the experiences of AIFMs.