ESMA Guidelines on Sound Remuneration Policies for UCITS Management Companies

11 July 2024
Ref.: 2202118

Circular no. 22/2024
To: Management companies of UCITS
Association of Companies in Financial Services

Subject: ESMA Guidelines on sound remuneration policies for UCITS management companies.

The Central Bank of Iceland has adopted guidelines on sound remuneration policies on the basis of Directive 2009/65/EC (UCITS1 ) (Guidelines on sound remuneration policies under the UCITS Directive; ESMA/2016/575; hereinafter also referred to as the guidelines), which the European Securities and Markets Authority (ESMA) issued. The purpose of the guidelines is to promote consistent interpretation and supervisory practices regarding rules on remuneration policies for UCITS management companies.

The guidelines are addressed to supervisory authorities and UCITS management companies.2

Remuneration and remuneration policy of management companies are discussed in Articles 14a and 14b of Directive 2014/91/EU, which were added to the UCITS framework in September 2014. Those provisions were transposed into Icelandic law by Articles 17 and 17a-c of Act No. 116/2021, cf. Article 206 of amending Act No. 38/2022.

The guidelines further specify requirements on remuneration policies and remuneration, both fixed remuneration and variable remuneration (bonuses), as set out in Articles 14a and 14b of the UCITS. They include requirements for remuneration policies, their adoption and review, and governance around remuneration in general. The guidelines also set out requirements for remuneration committees, both regarding role and composition. The guidelines also discuss bonuses in detail, including when it is permitted to pay them and in what manner, deferral and clawback of bonuses.

Part of the guidelines applies only to those employees of a management company who fall into the category of identified staff, which are employees who have a material impact on the risk profile of the management company, cf. the definition on p. 4 of the guidelines. In Annex II to the guidelines, a more detailed account is given of which part of the rules applies to the operations of management companies as a whole and which part applies only to employees who fall into the aforementioned category.

Although UCITS management companies must from now on take into account the provisions of the guidelines in their work, the Central Bank wishes to emphasise that there is not full consistency between all numbered items of the guidelines and the provisions of Articles 17 and 17a-c of Act No. 116/2021, and management companies must take this into account when they adopt the content of the guidelines, cf. the following:

[1] Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws and administrative provisions relating to UCITS.

[2] The guidelines are also addressed to investment companies not managed by a management company that received authorisation before the entry into force of UCITS. These guidelines (together with Articles 14a and 14b of UCITS) are not addressed to management companies that received authorisation before the entry into force of UCITS. However, Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial services sector applies.

CENTRAL BANK OF ICELAND
Kalkofnsvegur 1 101 Reykjavík www.sedlabanki.is 569 9600 sedlabanki@sedlabanki.is

• As previously stated, part of the guidelines applies only to identified staff of the management company, but the provisions of Articles 17 and 17a-c of Act No. 116/2021 apply to all employees of the management company.

• In item 47, the payment of bonuses to managers in a “supervisory function” is discussed, which would generally be the company board in Icelandic law. On the other hand, it is prohibited to grant bonuses to board members pursuant to the third paragraph of Article 17a of Act No. 116/2021.

• In items 73 and 74, the payment of bonuses to employees of control functions is discussed, with certain restrictions, but according to the aforementioned third paragraph of Article 17a of Act No. 116/2021, it is entirely prohibited to grant bonuses to employees working in risk management, internal audit or compliance.

• The guidelines also specify by way of example in item 132 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 17a of Act No. 116/2021.

The guidelines apply to all other aspects 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 aspects 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 UCITS management companies that are authorised to carry out the tasks set out in the third paragraph of Article 5 of Act No. 116/2021.

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 shall make every effort to comply with the guidelines of the supervisory authorities and general recommendations.

This circular will be published on the Central Bank's website together with a link to the English version of the guidelines. The Financial Supervisory Authority of the Central Bank of Iceland will also rely on the guidelines in its supervisory practice.

The Financial Supervisory Authority directs UCITS management companies to familiarise themselves with the aforementioned ESMA guidelines and take them into account in their operations as applicable.

Yours faithfully,
CENTRAL BANK OF ICELAND

Gísli Óttarsson
Kristín Logadóttir managing director department head prudential supervision prudential supervision

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Kristín Logadóttir
11.07.2024 13:20

Valid electronic signature
Gísli Óttarsson
11.07.2024 14:34