ESMA Guidelines on sound remuneration policies for managers of specialised funds (AIFMD)

11 July 2024
Ref.: 2202118

Circular no. 21/2024
To: Licensed managers of specialised funds and the Association of Companies in Financial Services

Subject: ESMA Guidelines on sound remuneration policies for managers of specialised funds (AIFMD).

The Central Bank of Iceland has adopted guidelines on sound remuneration policies on the basis of Directive 2011/61/EU (AIFMD1 ) (Guidelines on sound remuneration policies under the AIFMD; ESMA/2013/232), cf. also ESMA guidelines ESMA/2016/579 which amend point 33 of the aforementioned guidelines (hereinafter also referred to collectively as the guidelines), which the European Securities and Markets Authority (ESMA) issued. The guidelines are directed at both supervisory authorities and licensed managers of specialised funds. The guidelines do not apply to managers that manage one or more specialised funds if the only investors are the manager itself, its subsidiary, its parent undertaking or a subsidiary of its parent undertaking and if none of the investors is a specialised fund, cf. the second paragraph of Article 2 of Act No. 45/2020.2 The guidelines then do not apply to registered managers of specialised funds that have been registered on the basis of Article 7 of Act No. 45/2020.

The purpose of the guidelines is to promote consistent interpretation and supervisory actions regarding rules on remuneration policies and remuneration of managers of specialised funds.

The remuneration and remuneration policy of managers is addressed in Article 13 and Annex II to the AIFMD. Those provisions were transposed into Icelandic law by Article 21 and Article 21 a-c of Act No. 45/2020, cf. Article 177 of the amending Act No. 38/2022. The preparation of annual accounts with regard to remuneration policy is also addressed in points (e) and (f) of the second paragraph of Article 22. of the AIFMD, but that provision of the AIFMD was transposed into Icelandic law by the eighth paragraph of Article 45 of Act No. 45/2020. The guidelines are intended to ensure consistent application of the provisions on remuneration and remuneration policies set out in Article 13, points (e) and (f) of the second paragraph of Article 22 and Annex II to the AIFMD.

The guidelines contain provisions that further specify the requirements for remuneration policies, their adoption and review, and the governance structure surrounding remuneration in general. Requirements are also set out for remuneration committees, both regarding their role and composition.

Bonuses are addressed in some detail, when it is permitted to pay bonuses and in what manner, as well as the performance metrics that must form the basis for bonuses. Deferral and clawback of bonuses are also addressed. The supervision by financial undertakings of remuneration policies and remuneration is then addressed, along with provisions on transparency and disclosure of information on remuneration.

The guidelines concern the remuneration policies and remuneration practices of management companies as a whole. However, part of the guidelines concerns only those employees of managers of specialised funds who fall into the category of identified staff, i.e.

[1] Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on managers of specialised funds.

[2] However, Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial services sector applies to such funds (the act has not been implemented into Icelandic law but has taken effect within the EEA).

Kalkofnsvegur 1 101 Reykjavík www.sedlabanki.is 569 9600 sedlabanki@sedlabanki.is

CENTRAL BANK OF ICELAND

managers and employees who perform tasks that have a material impact on the risk profile of the manager. Annex II to the guidelines provides further detail on which part of the rules applies to the activities of management companies as a whole and which part applies only to employees who fall into the aforementioned category.

Although managers of specialised funds must from now on take account of the provisions of the guidelines in their work, the Central Bank wishes to emphasise that there is not full consistency between all points of the guidelines and the provisions of Article 21 and Article 21 a-c of Act No. 45/2020, and managers must take this into account when they adopt the content of the guidelines, cf. the following:

• As previously stated, part of the guidelines applies only to a specific category of the manager's staff (identified staff), but the provisions of Article 21 and Article 21 a-c of Act No. 45/2020 apply to all employees of the manager.

• In point 45 it is provided that, with certain restrictions, it is permitted to pay bonuses to managers in a "supervisory function", which would generally be the board of directors in Icelandic law. On the other hand, it is prohibited to grant board members bonuses pursuant to the third paragraph of Article 21 a of Act No. 45/2020.

• In points 71 and 72 it states that, with certain restrictions, it is permitted to pay bonuses to employees of control functions. According to the aforementioned third paragraph of Article 21 a of Act No. 45/2020, it is entirely prohibited to grant bonuses to employees who work in risk management, internal audit or compliance.

• The guidelines then specify by way of example in point 130 that a bonus may amount to up to 200% of an employee's fixed remuneration. On the other hand, it is prohibited to pay a bonus that exceeds 25% of an employee's fixed remuneration, cf. point 4 of the first paragraph of Article 21 a of Act No. 45/2020.

The guidelines apply to all other matters concerning remuneration policies and the payment of bonuses in general.

It is also appropriate here to draw attention to the fact that ESMA has issued guidelines that address certain matters regarding remuneration requirements in markets for financial instruments (Guidelines On certain aspects of the MIFID II remuneration requirements; ESMA35-43-3565). The Central Bank has adopted these guidelines and sent them to the relevant supervised entities, cf. Circular no. 23/2024. The guidelines in question apply, among other things, to managers of specialised funds that have authorisation to carry out the tasks set out in the third paragraph of Article 9 of Act No. 45/2020.

According to the third paragraph of Article 16 of the ESAs Regulations, which were implemented by Act No. 24/2017 on the European Financial Market Supervisory System, competent authorities and the relevant supervised entities must seek all avenues to comply with the guidelines of the supervisory authorities and general recommendations.

The Financial Supervisory Authority directs licensed operators of specialised funds to familiarise themselves with the aforementioned ESMA guidelines and to take them into account in their operations as applicable. The Financial Supervisory Authority will rely on the guidelines in its supervisory practice and in assessing whether the requirements under the provisions discussed above are met.

This circular letter will be published on the Central Bank's website together with a link to the English version of the guidelines.

Yours faithfully,
CENTRAL BANK OF ICELAND

Gísli Óttarsson managing director prudential supervision

Kristín Logadóttir head of department prudential supervision

Valid electronic signature
Kristín Logadóttir
11.07.2024 13:07

Valid electronic signature
Gísli Óttarsson
11.07.2024 14:33