Dutch bonus cap introduced for AIFMs and UCITS Mancos

Dutch Minister of Finance proposes to extend the 100% bonus cap of The ​Capital Requirements Directive IV (CRD IV) to Alternative Investment Fund Managers (AIFMs) and Undertakings for Collective Investment in Transferable Securities (UCITS) management companies (Manco’s) in the Netherlands.

What is this about?

Currently, of AIFMs, UCITS Manco’s and investment firms trading on own account (the Companies) are exempt from the Financial Firms Remuneration Policy Act (the Act), which includes a controversial bonus cap limiting variable remuneration to 20% of the fixed remuneration. However, a recent legislative proposal that was published for consultation (the Proposal) seeks to apply the Act to the Companies insofar as they are part of a group subject to consolidated supervision under CRD IV, as such catering for the implementation of CRD IV in this respect. This means that the variable component of remuneration of employees of the Companies may not exceed 100% (or 200% with the approval of shareholders) of the fixed component of their remuneration on an annual basis.

The bonus cap of 20% does not apply.

Which firms should care?

AIFMs and UCITS Manco’s and investment firms trading on own account.

What should they know?

CRD IV requires a group-wide remuneration policy to apply to all staff at group, parent and subsidiary levels, and states that CRD IV’s requirements for the contents of remuneration policies should apply "at least" to those staff members whose professional activities have a material impact on the group’s risk profile (Identified Staff).

Furthermore, the European Securities and Markets Authority (ESMA) published guidelines on sound remuneration policies under the UCITS V Directive on 12 April 2016, which also provide guidance in respect of a UCITS Manco or AIFM part of a group subject to consolidated supervision. According to ESMA’s guidelines, where staff of the UCITS Manco or the AIFM are Identified Staff for the purpose of CRD IV rules, they should be remunerated either:

• on activities carried out on a pro rata basis between CRD IV, UCITS and AIFMD (based on, for instance, time spent on each service), or
• where there is a conflict between CRD IV and UCITS (or AIFMD) remuneration principles, by applying “sectoral” remuneration principles which are deemed more effective for discouraging excessive risk taking.

However, different from these approaches, the Act applies to all employees within a financial institution and does not differentiate between activities performed. This means that potentially a 100% bonus cap (or 200% with the approval of shareholders) is introduced for all employees of AIFMs and UCITS Manco’s, regardless of the activities performed.

When will this apply?

These rules are expected to enter into force by mid 2018.

Any further thoughts?

It will be interesting to see whether the Proposal will be amended to introduce the 100% bonus cap (or 200% with the approval of shareholders) apply to Identified Staff only, as intended under CRD IV. If the bonus cap will be applicable to all employees of the Companies, the Dutch legislator will create another "un-level playing field" within Europe in respect of remuneration.