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Investment Funds Update: UCITS Remuneration Guidelines and Listing Investment Funds on the GEM
AUTHOR(S): Tara Doyle, Michael Jackson, Dualta Counihan, Joe Beashel, Anne-Marie Bohan, Shay Lydon, Liam Collins, Philip Lovegrove, Elizabeth Grace, Oisin McClenaghan, Michelle Ridge
PRACTICE AREA GROUP: Asset Management and Investment Funds
The Matheson Asset Management Team would like to update you on some recent developments. As always, our partners are available to speak with you should you require any further detail in relation to these matters.
ESMA Publishes UCITS Remuneration Guidelines
The European Securities and Markets Authority (“ESMA”) has published its final report on Guidelines on Sound Remuneration Policies under the UCITS Directive and AIFMD (the “Guidelines”) and has provided that the Guidelines will apply from 1 January 2017.
The most significant change to the draft version of the Guidelines consulted upon in July 2015 is that the final Guidelines do not offer any guidance as to whether the application of the proportionality principle may enable management companies to dis-apply specific requirements of the pay-out process (including the provisions on deferral and clawback of variable compensation). This does not mean, however, that ESMA has determined that certain remuneration requirements may not be dis-applied. Indeed, in a letter to the European Union (“EU”) law-making institutions published alongside the Guidelines, ESMA sets out its view that it should be possible to dis-apply the requirements relating to the pay-out process under specific circumstances and that it should also be possible to apply lower thresholds whenever minimum quantitative thresholds are set for the pay-out requirements. ESMA provides a number of examples in the letter of circumstances in which it believes it should be possible to tailor the rules on the pay-out process and concludes that it would be inappropriate to subject: (a) smaller fund managers; (b) managers with simpler internal organisation or activities; and (c) managers with activities of limited scope and complexity, to the requirements of the pay-out process in all circumstances.
ESMA suggests in the letter that changes in the relevant asset management legislation could be one way to further clarify the applicable regulatory framework and to ensure consistent application of the remuneration requirements in the asset management sector. In the absence of legislative amendment at European level, or clarification at member state level, by 1 January 2017, it may be necessary for the relevant management company to make its own assessment as to the application of the proportionality principle. In doing so, we believe it would be appropriate for the management company to have regard to ESMA’s views in the letter regarding the circumstances in which a management company may rely upon the principle of proportionality.
We welcome the deferral of the application date of the Guidelines from March 2016 to 1 January 2017. A transitional period is provided for with respect to the guidance on the rules on variable remuneration, which will apply to the calculation of payments relating to new awards of variable remuneration to identified staff for the first full performance period after 1 January 2017. This is a welcome clarification given the ambiguity on this issue in ESMA’s recent Q&A relating to the update of fund documentation to reflect the UCITS V requirements. This transitional period should allow management companies some necessary time to review remuneration practices and to make any necessary adjustments in light of the Guidelines.
For more detail on the final Guidelines, please see our briefing note setting out the background to the proportionality issue and highlighting the other changes to the July 2015 draft version of the Guidelines.
Irish Stock Exchange Opens Global Exchange Market to Investment Funds
The Irish Stock Exchange (“ISE”) has opened its Global Exchange Market (“GEM”) to investment funds with effect from 4 April 2016. Investment funds may now list their securities on the GEM or transfer an existing listing from the Main Securities Market (“MSM”) of the ISE to the GEM.
The GEM is authorised by the Central Bank of Ireland as a multi-lateral trading facility as defined in the Markets in Financial Instruments Directive (“MiFID”) and, as a result, investment funds listed on the GEM will not be subject to the Prospectus Directive, the Transparency Directive or the Statutory Audit Directive. The ISE has issued GEM Rules for Investment Funds, which are broadly similar to the current MSM listing rules.
A transfer of an investment fund’s listing from the MSM to the GEM may be done by way of announcement, which is subject to prior approval by the ISE and can be submitted using the normal channels. ISE approval of the announcement is expected to issue within one working day. There is no additional cost for transferring a listing from the MSM to the GEM.