AIFMD: final Guidance on remuneration provides some further clarity but leaves many questions unanswered

The European Securities and Markets Authority ("ESMA") has published its final guidance to regulators on the remuneration provisions of the Alternative Investment Fund Managers Directive (the "AIFMD").

ESMA has added some helpful guidance since the draft text was published in June 2012, but a number of key issues remain unresolved and will need to be dealt with by the FSA.

This final ESMA Guidance will now be used by the FSA to create a UK AIFMD Remuneration Code that will apply to UK Managers, which the FSA is required to finalise by 22 July 2013.

ESMA has clarified that the remuneration requirements are subject to the transitional arrangements contained in the AIFMD. We therefore understand that Managers will need to demonstrate compliance with the remuneration provisions as part of the approval process under the AIFMD (subject to any further transitional provisions introduced by the FSA). Managers may, however, need to go early as they may need to apply a compliant policy from the start of the remuneration round in which AIFMD approval is sought.

Other important points from the Guidance (which are discussed in detail in our full briefing) include:

• Managers will be required to ensure that delegate entities comply with remuneration requirements which are equally as effective as the AIFMD rules – this is likely to be particularly onerous on Managers delegating to non-EU entities.
• ESMA confirms that certain Managers will be able disapply entirely the requirements to pay remuneration in the form of fund units and to operate deferral, retention and post-award risk adjustment mechanisms on the grounds of proportionality, but little guidance is provided as to how the proportionality test will be applied.
• Clearer guidance is given as to which Managers will be exempt from the requirement to establish a Remuneration Committee.

A number of key issues remain unresolved, including:

• How the proportionality tests will apply in the case of groups containing multiple Managers.
• How Identified Staff members responsible for multiple funds must be paid and whether, for senior staff, payment in the form of shares in the Manager, rather than fund units, will be acceptable.
• How the provisions regarding carried interest or co-investment arrangements will be applied in practice.

The outstanding issues referred to above are also discussed in detail in our August 2012 Guide to the AIFMD remuneration rules, which also includes an overview of the AIFMD remuneration requirements.

For more information please contact Mark Ife or Tim Leaver.  For copies of our briefings please contact Magdalena Flynn.