European Banking Authority
Remuneration and governance under the IFD - EBA publishes revised guidelines - 22 November 2021
The European Banking Authority (EBA) has published final reports containing updated guidelines on sound remuneration policies (EBA/GL/2021/13) (Remuneration Guidelines) as well as revised guidelines on internal governance (EBA/GL/2021/17) (Governance Guidelines) under the Investment Firms Directive ((EU) 2019/2034) (IFD).
The Remuneration Guidelines provide detail on how Class 2 investment firms should apply the provisions on remuneration policies and variable remuneration of specific staff. These firms are non-systemically relevant but do not qualify as small and non-interconnected firms and are subject to the full scope of the IFD and the Investment Firms Regulation ((EU) 2019/2033) (IFR). The accompanying press release notes that the Remuneration Guidelines are “as far as possible consistent with those under the Capital Requirements Directive (CRD)” and that “differences between the IFD and CRD (e.g., the absence of a bonus cap and differences in instruments and the length of deferral periods) have been taken into account”.
The Governance Guidelines set out how the IFD governance provisions should be applied by the same subset of Class 2 investment firms, with a view to ensuring the sound management of risks across all three lines of defence (including, in particular, firms’ compliance, independent risk management and internal audit functions).
EBA Final Report: Guidelines on sound remuneration policies under Directive (EU) 2019/2034
Press release
EBA Final Report: Guidelines on internal governance under Directive (EU) 2019/2034
Press release
European Parliament
UCITS and PRIIPs - European Parliament adopts quick fix amendments - 23 November 2021
The European Parliament (Parliament) has announced that it has voted to adopt the following first reading positions in relation to undertakings for collective investments in transferable securities (UCITS):
- Position on the proposed Regulation amending the packaged retail and insurance-based investments products (PRIIPs) Regulation (1286/2014/EU) (P9_TA(2021)0461), extending a transitional arrangement explained below; and
- Position on the proposed Directive amending the UCITS Directive (2009/65/EC) (P9_TA(2021)0462) regarding key information documents (KIDs).
The European Commission (Commission) adopted a legislative proposal in July 2021 for a Directive amending the UCITS Directive which specified that, where a KID is produced for a UCITS under the PRIIPs Regulation, it should be deemed to satisfy the requirements applicable to key investor information for the purposes of the UCITS Directive. At the same time, the Commission adopted a legislative proposal for amendments to the PRIIPS Regulation extending a transitional arrangement under Article 32 which exempts certain firms advising on, or selling, units of UCITS and non-UCITS from the requirement to provide retail investors with a KID. Under the texts adopted by the Parliament, the Article 32 transitional arrangement will be extended until 31 December 2022, with the revisions to the UCITS Directive set to apply from 1 January 2023.
The Commission has been tasked with producing a report addressing certain issues in the PRIIPs Regulation, including the need for a clearer definition of retail investors and the provision of pre-contractual information to professional investors.
Next, the Council of the EU must adopt the legislative proposals. After this, the Regulation and the Directive will enter into force on the day following their publication in the Official Journal of the European Union.
European Parliament: Press release: Companies given more time to present key information to small investors in the EU
European Parliament: Texts adopted: Packaged retail and insurance-based investment products (PRIIPs): key information documents. Extension of the transitional arrangement (P9_TA(2021)0461
European Parliament: Texts adopted: Undertakings for collective investment in transferable securities (UCITS) the use of key information documents (P9_TA(2021)0462)
European Commission
Changes to UCITS and AIFMs Directives - European Commission adopts legislative proposal - 25 November 2021
The European Commission (Commission) has published a legislative proposal (COM(2021) 721 final) for a Directive to amend the Alternative Investment Fund Managers (AIFMs) Directive (2011/61/EU) (AIFMD) and the Directive relating to undertakings for collective investment in transferable securities (UCITS) (2009/65/EC) (the UCITS Directive), regarding delegation arrangements, liquidity risk management, supervisory reporting, provision of depository and custody services, and loan origination, by alternative investment funds.
The proposal for a Directive follows the Commission’s review of the scope of the AIFMD. Since the issues highlighted were equally relevant for the activities of UCITS, the Commission is proposing to amend both AIFMD and the UCITS Directive to better align their requirements.
On AIFMD, the proposed Directive would, amongst other things clarify that AIFMs providing ancillary services involving financial instruments are subject to the rules laid down in the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II). It would also lay down common rules to establish an efficient internal market for loan-originating AIFs, enable AIFs to develop their activities by originating loans in all Member States and facilitate the access to finance by EU companies.
On the UCITS Directive, the proposed Directive would, amongst other things, clarify that the delegation rules laid down in Article 13 apply to all functions listed in Annex II and to the ancillary services referred to in Article 6(3), to ensure uniform application. It would also delegate the power to adopt acts under Article 290 Treaty on the Functioning of the European Union (TFEU) to the Commission in respect of specifying the conditions for delegation from a UCITS management company to a third party, and the conditions under which a UCITS management company can be deemed a letter-box entity and therefore can no longer be considered to be the manager of the UCITS.
Separately, the Commission has also published an impact assessment (SWD(2021)340 final) and an executive summary of the impact assessment (SWD(2021)341 final).
The Council of the European Union and the European Parliament will now consider the proposal. If approved, the Directive will enter into force on the twentieth day following its publication in the Official Journal of the European Union.
European Commission: Proposal for a Directive of the European Parliament and of the Council: amending Directives 2011/61/EU and 2009/65EC as regards relegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by alternative investment funds (COM(2021) 721 final)
European Commission: Annex
Webpage: COM(2021) 721 final
Staff working document: Impact assessment (SWD(2021)340 final)
Webpage: Impact assessment (SWD(2021)340 final)
Staff working document: Impact assessment: Executive summary (SWD(2021)341 final)
Webpage: Impact assessment: Executive summary (SWD(2021)341 final)
ELTIF Regulation - European Commission adopts legislative proposal - 25 November 2021
The Commission has adopted a legislative proposal (COM(2021) 722 final) for a Regulation to amend the Regulation on European long-term investment funds (ELTIFs) ((EU 2015/760) (ELTIF Regulation) regarding the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules, and requirements pertaining to the authorisation, investment policies and operating conditions of ELTIFs.
The proposal follows the Commission consultation relating to its review of the ELTIF Regulation, published on 19 October 2020, as well as the European Securities and Markets Authority’s priorities for amendments to the ELTIF Regulation, published 2 February 2021.
Separately, the Commission has also published a report on the functioning of the ELTIF framework (COM(2021) 738 final), an impact assessment (SWD(2021)342 final) and an executive summary of the impact assessment (SWD(2021)343 final).
The Council of the European Union and the European Parliament will now consider the Proposal. If approved, the Regulation will apply six months after its entry into force, being the 20th day following its publication in the Official Journal of the European Union.
European Commission: Proposal for a Regulation of the European Parliament and of the Council: amending Regulation (EU) 2015/760 as regards the scope of eligible assets and investments, the portfolio composition and diversification requirements, the borrowing of cash and other fund rules and as regards requirements pertaining to the authorisation, investment policies and operating conditions of European long-term investment funds (COM 2021) 722 final)
European Commission: Report to the European Parliament and the Council on the functioning of the European long-term investment funds (ELTIF) framework (COM/2021/738 final)
Staff working document: Impact assessment (SWD(2021)342 final)
Webpage: Staff working document: Impact Assessment (SWD(2021)342 final)
Staff working document: Impact assessment: Executive summary (SWD(2021)343 final)
Webpage: Staff working document: Impact assessment: Executive summary (SWD(2021)343 final)
Investment Association
Principles of Remuneration for 2022 - IA publishes report and letter to chairs of FTSE 350 remuneration committees - 18 November 2021
The Investment Association (IA) has published a report amending its principles of remuneration for 2022 (IA principles), alongside a letter to chairs of FTSE 350 remuneration committees.
The accompanying press release notes that investment managers will “expect companies to continue to show restraint and restrict executive bonuses where government support has been taken and not paid back during the year under review”. The letter also refers to the importance of environmental, social and governance (ESG) metrics, noting that these should flow through into determining executive pay and bonuses and should be clearly linked to company strategy. The rationale and robustness of ESG performance-related targets should also be made clear to investors.
Investment managers will expect to see a plan to align pension contributions for directors with the contribution levels of the wider workforce by the end of 2022, as part of wider efforts to ensure fairness and good employee relations.
IA Report: Principles of Remuneration 2022
IA Letter to Remuneration Committee Chairs
Press release
See also the Asset Management section for an item on the EBA’s revised guidelines on remuneration and governance under the IFD.
