Final ESMA Guidelines on UCITS V remuneration provisions: ESMA addresses the application of the proportionality principle under UCITS V and AIFMD

The European Securities and Markets Authority ("ESMA") has published its final guidelines on the remuneration requirements of the UCITS V directive (the "UCITS V Guidelines").  The key issue addressed by ESMA is the ability for smaller or less complex managers to disapply certain of the more onerous remuneration requirements (including the "Pay Out Process Rules") on the basis of the proportionality principle.

In the UCITS V Guidelines, ESMA has removed the specific statement which had been included in the consultation draft that it is permissible for smaller or less complex firms to disapply the Pay Out Process Rules.  However, alongside the UCITS V Guidelines, ESMA has published a letter to the European Commission and European Parliament, in which ESMA states that, in its view, disapplication on the grounds of proportionality is permissible. Further, in light of the recent uncertainty in this area, ESMA has called for the European legislators to clarify that this is the case, possibly through amendments to the AIFMD and UCITS V directives.

Paul Ellerman, Mark Ife and Bradley Richardson from our incentives team discuss the approach which ESMA has taken, and how this affects the application of the proportionality principle under UCITS V, AIFMD and CRD IV, in their full briefing.

Written by Karen - HSF