1. (1)

   1The UCITS Remuneration Code applies to a UK UCITS management company that manages a UCITS scheme2.

2. (2)

   [deleted]

3. (3)

   In this section, a firm under (1)2 above, is referred to as a management company.

1. (1)

   This chapter applies to a UK UCITS management company in relation to remuneration paid, provided or awarded by any person to the extent that it is paid, provided or awarded in connection with employment by a management company.

2. (2)

   Paragraph (1) is without prejudice to the meaning of remuneration elsewhere in the Handbook.

1A management company must establish and apply remuneration policies and practices for UCITS Remuneration Code staff that:

1. (1)

   are consistent with and promote sound and effective risk management;

2. (2)

   do not encourage risk taking which is inconsistent with the risk profiles or the instrument constituting the fund or the prospectus, as applicable, of the UCITS it manages;

3. (3)

   do not impair the management company’s compliance with its duty to act in the best interests of the UCITS it manages; and

4. (4)

   include fixed and variable components of remuneration, including salaries and discretionary pension benefits.

[Note: article 14a(1) and (2) of the UCITS Directive]

1. (1)

   UCITS Remuneration Code staff comprise those categories of staff whose professional activities have a material impact on the risk profiles of:

   1. (a)

      the management company; or

   2. (b)

      the UCITS that the management company manages.

2. (2)

   UCITS Remuneration Code staff must comprise:

   1. (a)

      senior management;

   2. (b)

      risk takers;

   3. (c)

      staff engaged in control functions; and

   4. (d)

      any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers.

[Note: article 14a(3) of the UCITS Directive]

1. (1)

   When establishing and applying the remuneration policies for UCITS Remuneration Code staff, a management company must comply with the UCITS remuneration principles in a way and to the extent that is appropriate to:

   1. (a)

      its size;

   2. (b)

      internal organisation; and

   3. (c)

      the nature, scope and complexity of its activities.

2. (2)

   Paragraph (1) does not apply to the requirement for significant management companies to have a remuneration committee (SYSC 19E.2.9R).

3. (3)

   The UCITS remuneration principles apply to:

   1. (a)

      any benefit of any type paid by the management company;

   2. (b)

      any amount paid directly by the UCITS itself, including performance fees, for the benefit of UCITS Remuneration Code staff; and

   3. (c)

      any transfer of units or shares of the UCITS made for the benefit of UCITS Remuneration Code staff.

[Note: article 14b(1), (3) and (4) of the UCITS Directive]

A management company must ensure that its remuneration policy:

1. (1)

   is consistent with, and promotes sound and effective risk management; and

2. (2)

   does not encourage risk taking which is inconsistent with the risk profiles or the instrument constituting the fund of the UCITS it manages.

[Note: article 14b(1)(a) of the UCITS Directive]

A management company must ensure that its remuneration policy:

1. (1)

   is in line with the business strategy, objectives, values and interests of:

   1. (a)

      the management company;

   2. (b)

      the UCITS it manages; and

   3. (c)

      the investors in such UCITS; and

2. (2)

   includes measures to avoid conflicts of interest.

[Note: article 14b(1)(b) of the UCITS Directive]

1. (1)

   A management company must ensure that its management body in its supervisory function:

   1. (a)

      adopts and reviews at least annually the general principles of the remuneration policy; and

   2. (b)

      is responsible for the implementation of the general principles of the remuneration policy.

2. (2)

   The tasks in (1) must be undertaken only by members of the management body who:

   1. (a)

      do not perform any executive functions in the management company concerned; and

   2. (b)

      have expertise in risk management and remuneration.

[Note: article 14b(1)(c) of the UCITS Directive]

A management company must ensure the implementation of the remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the management body in its supervisory function.

[Note: article 14b(1)(d) of the UCITS Directive]

1. (1)

   A management company must establish a remuneration committee if it is significant in terms of:

   1. (a)

      its size, or the size of the UCITS that it manages2;

   2. (b)

      [deleted]2

   3. (c)

      the complexity of its internal organisation; and2

   4. (d)

      the nature, the scope and the complexity of its activities.

2. (2)

   The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on:

   1. (a)

      remuneration policies and practices; and

   2. (b)

      the incentives created for managing risk.

3. (3)

   The remuneration committee must be responsible for the preparation of decisions regarding remuneration, including those which:

   1. (a)

      have implications for the risk and risk management of the management company or the UCITS concerned; and

   2. (b)

      are taken by the management body in its supervisory function.

4. (4)

   The chairman and the members of the remuneration committee must be members of the management body who do not perform any executive function in the management company.

5. (5)

   When preparing its decisions, the remuneration committee must take into account the long-term interest of investors and other stakeholders and the public interest.

[Note: article 14b(4) of the UCITS Directive]

A management company must ensure that employees engaged in control functions are compensated according to the achievement of the objectives linked to their functions, independent of the performance of the business areas that are within their remit.

[Note: article 14b(1)(e) of the UCITS Directive]

A management company must ensure the remuneration of the senior officers in the risk management and compliance functions is directly overseen by:

1. (1)

   the remuneration committee; or

2. (2)

   if such a committee has not been established, the management body in its supervisory function.

[Note: article 14b(1)(f) of the UCITS Directive]

1. (1)

   A management company must ensure that, where remuneration is performance related, the total amount of remuneration is based on a combination of:

   1. (a)

      the assessment of the performance of the individual and of the business unit or UCITS concerned, and of their risks; and

   2. (b)

      the overall results of the management company.

2. (2)

   When assessing individual performance, financial and non-financial criteria must be taken into account.

[Note: article 14b(1)(g) of the UCITS Directive]

A management company must ensure that the assessment of performance is set in a multi-year framework appropriate to any holding period recommended to the investors of the UCITS managed by the management company to ensure that the:

1. (1)

   assessment process is based on the long-term performance of the UCITS and its investment risks; and

2. (2)

   actual payment of the performance-based components of remuneration is spread over the same period.

[Note: article 14b(1)(h) of the UCITS Directive]

A management company must not award, pay or provide guaranteed variable remuneration unless it:

1. (1)

   is exceptional;

2. (2)

   occurs only in the context of hiring new staff; and

3. (3)

   is limited to the first year of engagement.

[Note: article 14b(1)(i) of the UCITS Directive]

A management company must ensure that:

1. (1)

   fixed and variable components of total remuneration are appropriately balanced; and

2. (2)

   the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component.

[Note: article 14b(1)(j) of the UCITS Directive]

A management company must ensure that payments related to the early termination of a contract:

1. (1)

   reflect performance achieved over time; and

2. (2)

   are designed in a way that does not reward failure.

[Note: article 14b(1)(k) of the UCITS Directive]

1. (1)

   Subject to the legal structure of the UCITS and the instrument constituting the fund, a management company must ensure that a substantial portion, and in any event at least 50%, of any variable remuneration component consists of:

   1. (a)

      units or shares of the UCITS concerned; or

   2. (b)

      equivalent ownership interests in the UCITS concerned; or

   3. (c)

      share-linked instruments relating to the UCITS concerned; or

   4. (d)

      equivalent non-cash instruments relating to the UCITS concerned with incentives that are equally as effective as any of the instruments referred to in (a) to (c).

2. (2)

   However, if the management of UCITS accounts for less than 50% of the total portfolio managed by the management company, the minimum of 50% does not apply.

3. (3)

   The instruments in (1) must be subject to an appropriate retention policy designed to align incentives for the UCITS Remuneration Code staff with the long-term interests of:

   1. (a)

      the management company;

   2. (b)

      the UCITS it manages; and

   3. (c)

      the investors of such UCITS.

4. (4)

   This rule applies to:

   1. (a)

      the portion of the variable remuneration component deferred in line with SYSC 19E.2.20R(1); and

   2. (b)

      the portion not deferred.

[Note: article 14b(1)(m) of the UCITS Directive]

1. (1)

   A management company must not award, pay or provide a variable remuneration component unless a substantial portion, and in any event at least 40%, of the variable remuneration component, is deferred over a period which is:

   1. (a)

      appropriate in view of any holding period recommended to the investors of the UCITS concerned; and

   2. (b)

      correctly aligned with the nature of the risks of the UCITS in question.

2. (2)

   The period referred to in (1) must be at least three years.

3. (3)

   Remuneration payable under (1) must vest no faster than on a pro-rata basis.

4. (4)

   For a variable remuneration component of a particularly high amount, at least 60% of the amount must be deferred.

[Note: article 14b(1)(n) of the UCITS Directive]

A management company must ensure that any variable remuneration, including a deferred portion, is paid or vests only if it is:

1. (1)

   sustainable according to the financial situation of the management company as a whole; and

2. (2)

   justified according to the performance of:

   1. (a)

      the UCITS;

   2. (b)

      the business unit; and

   3. (c)

      the individual concerned.

[Note: first sub-paragraph of article 14b(1)(o) of the UCITS Directive]

A management company must ensure that the measurement of performance used to calculate variable remuneration components, or pools of variable remuneration components, includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks.

[Note: article 14b(1)(l) of the UCITS Directive]

A management company must ensure that:

1. (1)

   its pension policy is in line with the business strategy, objectives, values and long-term interests of:

   1. (a)

      the management company; and

   2. (b)

      the UCITS it manages;

2. (2)

   when an employee leaves the management company before retirement, any discretionary pension benefits are held by the management company for a period of five years in the form of the instruments referred to in SYSC 19E.2.18R(1); and

3. (3)

   for an employee reaching retirement, discretionary pension benefits are:

   1. (a)

      paid to the employee in the form of instruments referred to in SYSC 19E.2.18R(1); and

   2. (b)

      subject to a five-year retention period.

[Note: article 14b(1)(p) of the UCITS Directive]

A management company must ensure that its employees undertake not to use any of the following to undermine the risk alignment effects embedded in their remuneration arrangements:

1. (1)

   personal hedging strategies; or

2. (2)

   remuneration-related insurance; or

3. (3)

   liability-related insurance.

[Note: article 14b(1)(q) of the UCITS Directive]

A management company must ensure that variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the requirements of the UCITS Remuneration Code.

[Note: article 14b(1)(r) of the UCITS Directive]