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IMA Summary: Response to Consultation Paper on Remuneration Policies and Practices

Core Content

The Investment Management Association (IMA) has responded to the Consultation Paper on Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors (CEBS). The IMA represents the UK asset management industry, which manages £3.4 trillion of assets on behalf of clients globally. It includes independent fund managers, investment arms of retail banks, life insurers, investment banks, and occupational pension scheme managers.

The IMA supports the general principle that remuneration policies should promote effective risk management and acknowledges that asset management firms already implement such policies. However, it emphasizes the need for a proportionate application of the Directive's requirements, given the unique nature of asset management activities compared to other financial institutions.

Main Views

1. Scope of the Guidelines

• The IMA agrees that firms should identify staff whose activities have a material impact on the institution's risk profile.
• They support the exclusion of individuals who do not materially impact the firm's risk, emphasizing that this should be a firm-specific determination.
• Partnerships are considered distinct from other company types, and only remuneration not classified as dividends should be subject to the Directive.

2. Proportionality

• The IMA supports the concept of neutralisation, allowing firms to apply the Directive's requirements proportionately.
• They argue that the implementation timetable is overly aggressive and request a suitable transitional period to ensure proper compliance.
• Asset management firms are distinct due to their agency-based model, lack of balance sheet risk, and replaceable nature, which should inform proportionality in remuneration structures.

3. Group Context

• Group-wide remuneration policies should align with the Directive's principles but not be used to circumvent its requirements.
• The IMA supports the idea that group application should ensure compliance without imposing double standards or conflicting obligations.
• Remuneration for staff employed by offshore entities should only reflect the activities within the scope of the Directive.

Key Information

4. Governance of Remuneration

• Governance structures should reflect the legal and operational nature of the firm, with flexibility in the size and complexity of the firm.
• Control functions should remain independent and not be involved in the actual determination of individual remuneration awards.

5. Risk Alignment

• The IMA supports the concept of risk-aligned remuneration but highlights that asset management firms are not engaged in speculative activities.
• Variable remuneration in asset management is based on realised value, not turnover or speculative performance.
• Fixed remuneration should also be considered in the context of capital requirements and stakeholder impact.

6. Discretionary Pension Benefits

• The IMA requests clarification on the scope of discretionary pension benefits, suggesting they should not be included in the Directive's application.
• Defined benefit and defined contribution pensions are considered similar to fixed remuneration and should be excluded from the Directive's scope.

7. Guaranteed Variable Remuneration

• The IMA supports the use of retention bonuses, provided they are subject to appropriate controls and governance.
• They request that the guidance explicitly permit such variable remuneration as part of a proportionate approach.

8. Personal Hedging

• The IMA agrees that personal hedging should not undermine risk alignment in remuneration structures.
• However, they note that firms cannot ensure full compliance and request that reasonable steps be taken to encourage staff adherence.

9. Fixed versus Variable Remuneration

• The IMA supports a balanced approach between fixed and variable remuneration, with flexibility based on firm-specific conditions.
• They emphasize that this balance should not be mandated across all firms.

10. Disclosure

• The IMA supports proportionality in the disclosure of remuneration policies.
• They suggest that disclosure should be based on the firm's size, internal organisation, and the nature, scale, and complexity of its activities.
• A holistic approach is preferred over focusing on any single factor when determining disclosure obligations.

Conclusion

The IMA advocates for a proportionate and flexible application of the Directive's remuneration requirements, tailored to the unique characteristics of asset management firms. They request a more realistic implementation timeline and seek clarity on specific provisions, particularly regarding pension benefits and personal hedging. The IMA supports the overall principles of risk alignment and effective governance but urges a nuanced approach that reflects the operational realities of the asset management sector.