The FSA has published a consultation paper on how the Alternative Investment Fund Managers Directive ("AIFMD") will be implemented in the UK by the FSA's successor, the Financial Conduct Authority ("FCA"). A second consultation paper is expected to be published in February 2013 addressing issues where there is not yet sufficient certainty for the FSA to begin consulting on them. The consultation paper covers a number of issues, including issues relating to the new remuneration rules which will apply to AIFMs.
The consultation paper includes a draft AIFM Remuneration Code. This is separate from the FSA's existing Remuneration Code for banks and other financial institutions but largely follows the structure of the existing Remuneration Code. The AIFM Remuneration Code will be based on the ESMA guidelines, a draft of which was published in July 2012 and which are expected to be finalised in early 2013 (for a copy of our earlier Law-Now on the draft ESMA guidelines click here).
A key area of concern for AIFMs has been how the proportionality principle will apply to an AIFM's remuneration policy. The draft ESMA guidelines did not include much detail on how the proportionality principle will apply in practice and ESMA are still considering the extent to which proportionality may be applied to an AIFM's remuneration policy. The FSA has said that, once the ESMA guidelines are finalised, it will establish a proportionality framework for firms within AIFMD.
Another area of concern has been how to deal with AIFMs that are caught by both the existing Remuneration Code, because they are caught by CRD3, and the new AIFM Remuneration Code because they are caught by the AIFMD. This will normally arise where an AIFM is part of a wider banking group. Whilst the AIFMD does not address how such overlaps are dealt with, the FSA considers that compliance with the AIFMD remuneration provisions should satisfy compliance with the Remuneration Code for banks. However, for some who fall within a low proportionality tier under CRD3 but will fall under a higher proportionality tier under the AIFMD, this may actually require greater compliance in future.
Whilst the consultation paper is a useful development and the FSA's comments on the proportionality principle and how overlaps with CRD3 are likely to be dealt with are helpful, firms are still waiting for the finalised ESMA guidelines to be published where debate is continuing on how the remuneration principles, such as those relating to deferral of variable remuneration, will apply. Firms will be particularly keen to know how the proportionality principle will be applied, as this may go some way to mitigating the effect of the new rules, and where little clarity is expected until after the finalised ESMA guidelines are published.
Please click here for a copy of the consultation paper.