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As the competent European securities markets authority, EFAMA would urge ESMA to adhere to its chosen course when finalising its Guidelines in light of the fact that the envisaged sectoral remuneration rules for UCITS managers would not only be necessary, but also the most effective and proportionate mean to attain the “UCITS V” Directive’s stated policy objectives. EFAMA’s response, therefore, resolutely defends the recognition of the principle of proportionality as a core EU governance principle and as a cornerstone of EU legislation and policy-making applied to the financial industry. Differently, EFAMA is strongly opposed to the recent controversial reading of this same principle, as pre-empted in the EBA’s consultation paper on draft Guidelines on sound remuneration policies under “CRD IV” published on 4 March 20153. Its reasons are explained further below in more detail. Before addressing the consultation’s specific questions, EFAMA invites ESMA to consider the following fundamental points:
Its “fiduciary” business model and the true purpose of remuneration rules for asset managers
In the thoroughly regulated environment of UCITS, attempts to contain “excessive risk-taking” through the levers of bank-like remuneration policies, or to simplistically extend such requirements to the asset management industry as per the EBA’s aforementioned draft Guidelines - at the same time denying the application of the proportionality principle for investment activities that are by nature distinct from banking activities - are worrisome as much as they are counterproductive.
The need for a greater degree of consistency between different remuneration rules for asset managers
EFAMA would take the opportunity of this consultation to draw the attention of EU policy-makers to the need for a consolidated, as much as consistent, sectoral remuneration regime for all types of asset management activities. Such regime should also be self-standing and should not have to “borrow” principles from parallel ones designed for other types of financial entities. EFAMA therefore wholeheartedly welcomes ESMA’s choice to align its preliminary Guidelines for the remuneration of UCITS managers with the corresponding ones for AIFMs in the spirit of “UCITS V”, but also as a first crucial step in the direction of an improved harmonisation of remuneration principles applied to our industry.
The necessity to apply proportionality to variable remuneration rules
Whereas the EBA expressly recognised that CRD IV remuneration rules should apply in light of the proportionality principle, it remained of the opinion that such principle should not apply to non-bank subsidiaries, regardless of their own equally effective remuneration rules (in particular, the relevant ESMA Guidelines on sound remuneration policies under the AIFMD of July 2013, the “AIFMD Guidelines”). From a risk viewpoint, such reading further disregards the nature of the investment management industry by ignoring the fundamental distinction between entities that trade on their own account vis-à-vis those that do not.