AIFM Remuneration Code (SYSC 19B)

The AIFM Remuneration Code (SYSC 19B) applies to a full-scope UK Alternative Investment Fund Manager of both UK and non-UK AIFs (full-scope UK AIFMs).

Proportionality

The AIFM Remuneration Code (the Code) sets out the standards and policies that full-scope UK AIFMs must meet when setting pay and bonus awards for their staff.

More details on how full-scope UK AIFMs should comply with the remuneration requirements under the AIFMD are set out in the ESMA Guidelines on sound remuneration policies under the AIFMD.

In Brexit: our approach to EU non-legislative materials, we explain how we expect firms to continue to apply guidelines to the extent that they remain relevant.

We have adopted a proportionate approach to implementing the AIFM Remuneration Code. This approach is set out in General guidance on the AIFM Remuneration Code (SYSC 19B). The guidance explains that the AIFM remuneration proportionality rule in SYSC 19B requires full-scope UK AIFMs to comply with the Code in a way and to the extent that is appropriate to their:

  • size
  • internal organisation, and
  • the nature, scope and complexity of their activities

Our guidance on the AIFM Remuneration Code includes more information on application to partnership structures, payment in units, shares or other instruments, as well as other guidance on remuneration.

Non-cash instruments

There may be circumstances where making awards in non-cash instruments linked to the AIF may be impractical or disproportionate and where non-cash instruments linked to the AIFM may be justified instead.

Where a firm can justify that this is the case, it may use suitable non-cash instruments linked to:

  • the AIFM or its parent company, or
  • to the performance of a weighted average of the AIFs managed by the AIFM

Where the management of AIFs accounts for less than 50% of the total portfolio managed by the AIFM, the requirement to award at least 50% of any variable remuneration in non-cash instruments does not apply.

This means that firms may determine a lower appropriate minimum level for their firm (SYSC19B.1.17R(1)).

For more details on the justifications and types of non-cash instrument that we would consider to be acceptable, please see Section 5 'Remuneration in the form of units, shares or other instruments' of the guidance document.

This doesn't affect our existing guidance, which may allow for the disapplication of certain requirements for a firm that is not significant (see Section 3 of the guidance), or for particular individuals awarded variable remuneration below the thresholds set out in SYSC19B.1.13AG.

Pay-out process rules

AIFM Code staff not employed by the AIFM

If an individual would otherwise be identified as a member of AIFM Code staff but isn't employed by the AIFM, the individual is still subject to the pay-out process rules.

The requirement of SYSC19B.1.3R to identify categories of staff whose professional activities have a material impact on the risk profile of the AIFM or the AIF the AIFM manages applies.

Where an AIFM has delegated portfolio risk management, Section 3 of the guidance also makes clear that delegates are to be subject to remuneration requirements that are equally as effective directly or by contractual arrangement in line with paragraph 18 of the ESMA Guidelines.

Carried interest and co-investment schemes

Carried interest plans are considered remuneration for the purposes of the Remuneration Code, as stated in SYSC 19B.1.4R(3). However, this isn't the case where they arise solely from an individual's return on a co-investment arrangement. This is an investment return rather than a form of remuneration and is not subject to the AIFM Remuneration Code as explained in example 7 of the annex to the guidance.

More clarity on this point can be found in paragraph 13 of the ESMA Guidelines.

Example 7 of the annex to the guidance sets out our view that a case can be made on proportionality grounds for relevant staff in certain circumstances to disapply the pay-out process rules on carried interest.

This would only be the case where a firm is able to demonstrate that:

  • existing arrangements satisfy the objectives of alignment of interest with investors (this should include application of many of the same principles)
  • appropriate clawback or make-up arrangements are in place

Capital Requirements Directive IV group firms

In accordance with SYSC 19A.3.1R, a firm subject to SYSC 19A must apply the requirements for material risk takers (MRTs) at group, parent undertaking and subsidiary undertakings levels.

SYSC19B.1.1R explains that the AIFM Remuneration Code applies to the full-scope UK AIFM. Note that, in certain instances, a firm may be subject to more than one of our Remuneration Codes.

The EBA Guidelines on sound remuneration practices clarify the EBA's position that remuneration rules implementing CRD IV apply, at the subsidiary level, to employees of an AIFM who have a material impact on the risk profile of the group.

Employees who only have a material impact on the risk profile of the AIFM subsidiary would not be subject to SYSC 19A and should apply the requirements of the AIFM Remuneration Code.

Capital Requirements Directive V group firms

In accordance with SYSC 19D.3.1R, a firm subject to SYSC 19D must apply the requirements for MRTs at group, parent undertaking and subsidiary undertakings levels.

SYSC19B.1.1R explains that the AIFM Remuneration Code applies to the full-scope UK AIFM. Note that, in certain instances, a firm may be subject to more than one of our Remuneration Codes.

Employees who do not have a material impact on the risk profile of the group or on the risk profile of a firm subject to SYSC 19D within the UK consolidation group would not be subject to SYSC 19D and should apply the requirements of the AIFM Remuneration Code.

Self-assessment template and tables for AIFMs

Use our RPS template for AIFMs to record your remuneration policies, practices and procedures and assess compliance with the Code.

Our RPS table for AIFMs allows you to keep a record of all AIFM Remuneration Code staff identified for the current performance year.

More information and guidance