Issues addressed by ALFI in its response to the EBA consultation relate particularly to the definition of staff, remuneration policies and group context, proportionality, and equivalence of remuneration rules for CRD IV, AIFMD and UCITS.
ALFI urged the EBA to consider the appropriate mechanisms to ensure that remuneration policies are aligned with the interests of customers. Asset managers have agency responsibilities to their clients, and both have an interest in the long-term performance of their funds which can, and is, measured and carefully scrutinised. Remuneration policies should be designed to support that long-term perspective and to be capable of being adjusted to take account of the performance which is delivered to the customer as well as business and market conditions. They need to take account of the fact that the risks in an asset management business are very different from those in a large balance sheet operation.
The proposed change of view on the application of proportionality is of particular concern. While previously the interpretation of the principle of proportionality allowed adjustment to take account of the other regimes applicable to asset managers the new interpretation would not permit this.
ALFI do not see why –or more importantly how – the EBA can invert the UCITS and AIFMD Co-legislators’ intentions for primary legislation with Level 3 Guidelines, and as a result would urge a complete removal of the application of CRD IV to affiliate entities within a consolidated group. At the very least ALFI would ask the EBA to explicitly exempt consolidated Asset Management groups (i.e. groups that do not contain large banks or other balance-sheet entities within consolidation) from the provision of having to cross-apply CRD IV controls to consolidated affiliates. This would enable consolidated Asset Management groups to continue to apply AIFMD, UCITS and CRD IV provisions solely to the entities for whom each set of primary legislation was designed in the first instance.
EBA policy also risks tipping the asset management industry into becoming a more volatile transmission mechanism, by forcing Asset Managers into a ‘hiring and firing’ fixed compensation culture rather than a ‘heightening and lowering’ variable compensation culture. And, of course, as with retaining rather than acquiring customers, it is simply cheaper to retain existing and experienced investment talent than it is to hire and train (let alone fire) it. This change in culture would risk destabilising the recruitment market through eroding the psychological contract as trust between employer and employee weakens proportionately. We think both are key considerations in the best interests of maximising the efficiency of market-based financing mechanisms. It is also worth noting that the process of training a portfolio manager up ‘through the ranks’ from investment analyst, through portfolio manager to investment director is a long-term process and that a more volatile hiring and firing culture will lean against the training as well as the retention of portfolio management talent.
Full ALFI response
© ALFI - Association of the Luxembourg Fund Industry
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