Managers of Undertakings for Collective Investments in Transferable Securities who do not already have 18 March 2016 marked on their calendars should pick up their pencils now.

That is the deadline on which the UK's Financial Conduct Authority must ensure that financial firms are obeying the European Union's UCITS V directive. Although the main burden of compliance falls predominantly on depositaries, managers are also going to have to carry their share of the weight because of the directive’s novelties which come in the form of the new remuneration impositions.

Pay-out process rules

At the forefront of the new remuneration requirements lies a set of principles. Conceptualised to mitigate incentives for excessive risk-taking, these principles impose three main restrictions on the remuneration of key staff, otherwise known as the pay-out process rules. In summary, the restrictions say that:

• a minimum of 50% of discretionary bonus should consist of the units of the UCITS managed;
• a minimum of 40% of the discretionary bonus should be deferred for three years; and
• discretionary bonuses should be subject to clawback.

Similar to its cousin, the Alternative Investment Fund Managers' Directive, these principles are subject to the overarching principle of ‘proportionality’, which allows managers to decide not to obey the pay-out process rules should the size and complexity of the business justify this. Managers who have delegated investment management to third parties ought to draw up contracts to ensure that they are also subject to the same remuneration requirements.

Disclosure

Managers also have to satisfy "transparency obligations," disclosing their remuneration and their remuneration policies to all and sundry. It will become mandatory for British UCITS prospecti and KIIDs (key investor information documents) to divulge the main elements of managers' remuneration policies. Annual reports will have to disclose aggregate remuneration paid by managers to key staff, the number of beneficiaries and, where relevant, performance fees.

A period of grace

Although the transposition of UCITS V is expected to take effect on 18 March 2016 in the UK, managers will be given a 'grace period' to comply with the new rules. It is important to note that managers will not have to comply with some of the remuneration requirements until the start of the full performance period after 18 March 2016. Prospecti will have to be updated with the new disclosure requirements by 30 September 2016 and KIIDs will have to include them in their next updates (and in any case before 18 March 2017).