19 March 2019 - Article
Hidden within the FCA’s Quarterly Consultation Paper, was a consultation on amendments to the Alternative Investment Fund Managers (AIFM) Remuneration Code and draft guidance clarifying when it would be disproportionate for an authorised AIFM to comply with certain aspects of the Code, given the nature, scale and complexity of the firm’s activities. AIFMs should review the suggested amendments to the Code and consider its practical application to their business. Those firms wishing to respond to the consultation have until 6 November 2013 to reply.
The key purpose of the FCA’s proposals is to provide guidance on the proportionality principle when applying the rules, for UK authorised managers, in particular with respect to the application of the risk adjustment rules, referred to as the “pay out process rules”.
In determining whether a firm needs to comply with the Code, the FCA considers firms’ assets under management (AUM) are a principal driver when applying the rules. The amounts suggested in determining whether the pay out process rules will apply in full are as follows:
- £500m – 1.5bn including assets acquired through leverage
- £4-6 billion where the AIFM is managing AIFs that are unleveraged and have no redemption right exercisable during the period of 5 years following the date of initial investment. Both of these figures are calculated on a net basis.
These thresholds are still open to consultation. The figures will be finalised in the FCA’s final Guidance.
The Guidance Consultation also sets out a range of other proportionality factors for firms to consider in the application of the firm in relation to the firm’s size, internal organisation and scale and complexity of its activities. These factors include:
- number of Code staff;
- number of funds managed and strategies used;
- whether the AIFM is listed, traded or owned by its own partners;
- FCA prudential categorisation
- the nature of certain fee structures such as carried interest and performance fees;
- the nature of any delegation arrangements between the AIFM and a delegate performing portfolio or risk management.
The FCA also provides further examples of how the proportionality factors above might be applied to firms in assessing how to apply the pay out process rules, or not, as the case may be. Firms should therefore spend some time considering the FCA’s draft guidance in preparation for complying with the Remuneration Code, which will apply from the first full performance period after the AIFM becomes authorised.
The consultation closes on 6 November 2013, with final guidance expected in early 2014.