On 28 March, 2014 the Malta Financial Services Authority (MFSA) published its guidance (MFSA’s Remuneration Guidance) for Maltese alternative investment fund managers (Malta AIFMs) looking to apply the proportionality principle under ESMA’s guidelines on sound remuneration policies under AIFMD (ESMA’s Remuneration Guidelines).

Click here for a copy of the MFSA’s Remuneration Guidance.

Under ESMA’s Remuneration Guidelines, an AIFM may choose to disapply certain of the remuneration requirements (in whole or in part) on the basis that applying such requirements would not be proportionate on account of the AIFM’s:

  1. size,
  2. internal organisation, and
  3. nature, scope and complexity of activities.

AIFMs are required to carry out an assessment on the basis of these criteria as to whether to disapply certain requirements completely (the rules on the pay out process and to establish a remuneration committee are the only ones that can be completely disapplied) or apply the requirements in part.

In addition to providing useful insight into the MFSA’s approach towards proportionality, the MFSA’s Remuneration Guidance provides clarity for Malta AIFMs on the MFSA’s: (i) interpretation of the size criterion and (ii) views on the disapplication of the requirements on the pay out process to identified staff whose remuneration is below certain materiality thresholds.

Size Criterion

The MFSA’s Remuneration Guidance indicates that a Malta AIFM assessing this criterion should, among other things, take account of:

  1. the value of portfolio of AIFs managed by the Malta AIFM and
  2. the number of employees of the Malta AIFM,

and provides its guidance on what thresholds would indicate a possible application of the proportionality principle.

Value of Portfolio of AIFs managed

The MFSA has opted to use this method of calculating thresholds which values derivatives at their market value (as opposed to their notional value such as when calculating capital requirements).

In essence, Malta AIFMs managing less than €1.25 billion in Value of Portfolio of AIFs using leverage or less than €6 billion where no leverage is used can benefit from the proportionality principle.

Number of Employees

The MFSA has indicated that a Malta AIFM which does not employ more than 30 employees can benefit from the proportionality principle.

Certain Identified Staff

The MFSA indicates that a Malta AIFM need not apply the requirements on the pay out process (payment in instruments, retention, deferral and claw backs) for an employee whose:

  1. variable remuneration does not exceed  50% of the employee’s total remuneration and
  2. total remuneration does not exceed €600,000.

This helpful guidance builds on the MFSA’s decision in June, 2013 not to apply ESMA’s remuneration guideline 18 to Malta AIFMs imposing AIFMD remuneration rules on delegates of the AIFM.

For more information or if you have any questions, please feel free to contact the author or any of the Key Contacts for GANADO’s Investment Management & Funds Industry Grouping.