AIFMD: Publication by ESMA of Consultation Paper regarding its remuneration guidelines for alternative investment fund managers

The European and Securities Markets Authority ("ESMA") has published a Consultation Paper on its proposed guidelines on the remuneration of alternative investment fund managers ("AIFMs"). The guidelines are intended to clarify the application of the rules contained in the Alternative Investment Fund Managers Directive ("AIFMD") with which AIFMs are required to comply when establishing and applying remuneration policies for certain categories of their staff (and which include provisions on the use of variable remuneration, deferrals and retentions and the disclosure of remuneration).  The stated aim of the AIFMD's remuneration provisions, coupled with the guidance, is to ensure that AIFMs "introduce sound and prudent remuneration policies with the aim of increasing investor protection and avoiding conflicts of interests that may lead to excessive risk taking".

A copy of the Consultation Paper and accompanying press release can be found here. Of particular interest to clients will be the guidance on:

• The implementation of the proportionality principle. The consultation paper makes clear that "not all AIFMs will have to give substance to the remuneration requirements in the same way and to the same extent". Factors such as size, the internal organisation of the AIFM and the complexity of its activities can be taken into account in determining the application of the remuneration requirements to an AIFM. The guidance also provides for the implementation of proportionality with respect to different categories of staff within an AIFM.
   
• The application of the remuneration rules in a group context. In particular the guidelines focus on the proper application of the rules where an AIFM forms part of a group to which remuneration rules already apply (such as those contained in the Capital Requirements Directive).
• External and internal disclosure of remuneration policies and practices by AIFMs.
• Types of remuneration which will need to be caught by AIFMs' remuneration policies.
• How to identify the categories of staff covered by the AIFMD.
• Governance of remuneration within AIFMs.

Our previous e-bulletin on remuneration under AIFMD can be found here and a copy of our guide to the AIFMD Level 1 framework directive can be downloaded here.

Next steps

The consultation on the guidelines will be open until 27 September 2012.

The final version of the guidelines will enter into force on 22 July 2013, which is the deadline for the transposition of the AIFMD in the Member States of the European Union.

If you wish to discuss the Consultation Paper, your response to it, or any other aspect relating to the AIFMD, please get in touch with any of Herbert Smith's funds team, employment and employee incentives team or your usual Herbert Smith contact.

Employment and Employee Incentives                                                                                                                              

Tim Leaver Partner
+44 20 7466 2305

Paul Ellerman Partner
+44 20 7466 2728

Mark Ife Partner
+44 20 7466 2133

Katie Russell Senior Associate
+44 20 7466 2190

Investment Funds

 Nigel Farr Partner
+44 20 7466 2360

Tim West Partner
+44 20 7466 2309

Nish Dissanayake Associate
+44 20 7466 2365