As part of a wider consultation on UCITS V implementation, the FCA has published its proposed Remuneration Code for UCITS managers, who under UCITS V are required to put in place various remuneration provisions similar to those already in place for banks, investment firms and AIFM managers.

The UK is required to implement UCITS V by 18 March 2016. The proposed UCITS Remuneration Code will, at new Chapter 19E of SYSC in the FCA Handbook, be the FCA’s 5th sectoral Remuneration Code. As such, it draws heavily on the framework and language of the other Remuneration Codes and imposes requirements for senior staff that will be familiar, including investing in funds managed by the fund managers (though there is no bonus cap, for example). There are also separate provisions requiring specific disclosures in fund prospectuses and annual reports.

Simultaneous consultations (notably on ESMA’s own guidelines on UCITS V remuneration provisions, which the UCITS Remuneration Code needs closely to follow (click here for a link to ESMA’s paper), and the EBA’s consultation on updating the CRD IV banking remuneration provisions (click here for a link to our report on this consultation) may lead to further changes being considered. This may either before or after the UCITS V Remuneration Code is published in final form. Firms will also need to bear in mind the existing ESMA MiFID guidelines on Remuneration Policies and Practices. The FCA’s following comments in the consultation therefore all come with the caveat that the proposals are still subject to alteration.

  • Code staff at UCITS management companies are only required under the relevant Directive to receive a percentage of their variable remuneration in non-cash form if at least 50% of the fund portfolio is in UCITS investments. The FCA says that the firm should still consider whether to apply this or use instruments in the fund manager rather than a fund.
  • The FCA is minded to apply proportionality thresholds regarding the need for compulsory application of the structural pay rules for UCITS management companies similar to those which exist for AIFMs, subject to the consultations taking place at European level.
  • The FCA notes that some firms will be caught by more than just one Remuneration Code, and so need to think how they apply various Codes which may conflict or require different levels of deferral or proportionality. 

    Where the firm is also the subsidiary of a credit institution, the FCA says that it is awaiting EBA and ESMA guidance before taking a view on how such a firm should comply with overlapping requirements. Where a firm is both an investment firm and caught by the UCITS Remuneration Code, then, if it is a BIPRU firm, compliance with the UCITS Remuneration Code will be presumed to satisfy the BIPRU requirements, but the FCA is awaiting the results of the consultation exercise for IFPRU firms. 

    The AIFM/UCITS overlap is of more interest as far more firms will be in this position, but the FCA is deftly leaving most of those points until it has received the final ESMA guidelines. The consultation paper sets out on pages 18 and 19 where the differences are. However, although differences are clearly the key points which will have to be addressed as firms work through implementation, the overall message is that the AIFM and UCITS codes are substantially similar.
  • On implementation, the FCA says that it proposes that the new rules will only apply in respect of awards of variable remuneration made in financial/performance years starting on or after 18 March 2016, and so in many cases the rules will only bite from 1 January 2017. However, it adds that the ESMA guidelines may cause it to review this. It is not clear whether this statement means bringing forward the implementation date or delaying it, and we are seeking clarification on this.

The deadline for comments on the FCA proposals is 9 November 2015. The deadline for comments on the ESMA guidelines is 23 October 2015 (so shortly before the FCA deadline).

Please click here for a link to the FCA consultation paper containing the proposed Remuneration Code.