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AMIC Response to FSA Consultation Paper – CP 10/19 – Revising the Remuneration Code

Core Content

The Asset Management and Investors Council (AMIC), representing the buy-side members of the ICMA, has responded to the Financial Services Authority (FSA) Consultation Paper on revising the Remuneration Code. The response emphasizes the need for a proportionate and flexible approach to remuneration policies that are tailored to the unique characteristics of the investment management industry.

Main Views and Key Information

1. Industry Context and AMIC's Role

• AMIC was established in March 2008 to represent investors-led organisations.
• It advocates for the differentiation of asset management from banking, as the former operates under a fiduciary duty to clients, while the latter may take on more systemic risk.
• The AMIC has consistently argued that asset managers are not banks and should not be subject to remuneration rules originally designed for the banking sector.

2. Proportionality in Remuneration Policies

• The CRD III allows for the proportionate application of remuneration rules based on firm size, structure, and risk profile.
• The FSB Principles for Sound Compensation Practices were originally aimed at systemically important institutions, not all financial firms.
• AMIC supports the proportionate application of remuneration policies and believes that detailed requirements should only apply to firms with significant systemic impact.
• Asset managers are not engaged in trading on their balance sheets, so their remuneration structures do not pose the same risks to the financial system as those of trading entities.

3. Remuneration and Risk Management

• Asset managers' remuneration systems already incorporate sound risk management principles.
• Variable pay is based on multi-year performance, not just short-term transactional profits, aligning with the long-term interests of clients.
• The AMIC is concerned that mandatory qualitative references could lead to increased fixed salaries, which may have adverse effects on risk management and increase regulatory capital requirements.

4. Remuneration and Performance

• Variable remuneration in asset management is tied to real value creation for clients, not just turnover or sales.
• The AMIC supports the use of external performance measures and quantitative and qualitative goals for compensation.
• For investment professionals, performance is typically assessed over a three-year rolling period, with 25% weighting for one-year results and 75% for three-year results.

5. Super-Equivalence and Level Playing Field

• AMIC supports the concept of super-equivalence, which aims to ensure consistent application of remuneration rules across jurisdictions.
• A consistent approach is necessary to promote fair competition and reduce systemic risk.
• Variations in remuneration rules could lead to a competitive disadvantage for UK asset managers compared to their European and international counterparts.

6. Pending Harmonisation and Coherence

• The CEBS is expected to issue interpretative guidance on proportionate application by late 2010, with final guidance likely by early 2011.
• The AMIC also notes that remuneration policies are currently fragmented across various directives such as the Alternative Investment Fund Managers Directive and UCITS IV.
• The industry is calling for harmonisation and clarity in European and national remuneration provisions to ensure global competitiveness.

Conclusion

The AMIC advocates for a proportionate, flexible, and coherent approach to remuneration policies that reflects the unique role and risk profile of asset management firms. They believe that current structures already support sound risk management and long-term client interests, and that overly prescriptive rules could undermine these goals. The Council also stresses the importance of consistent application across jurisdictions to maintain fair competition and market stability.