62020CJ0352_RES
Case C‑352/20
HOLD Alapkezelő Befektetési Alapkezelő Zrt.
v
Magyar Nemzeti Bank
(Request for a preliminary ruling from the Kúria)
Judgment of the Court (First Chamber), 1 August 2022
(Reference for a preliminary ruling – Approximation of laws – Directive 2009/65/EC – Undertakings for collective investment in transferable securities (UCITS) – Directive 2011/61/EU – Alternative investment funds – Remuneration policies and practices in respect of the senior managers of a UCITS management company or manager of an alternative investment fund – Dividends distributed to certain senior managers – Concept of ‘remuneration’ – Article 17(1) of the Charter of Fundamental Rights of the European Union – Right to property)
Freedom of establishment – Companies – Undertakings for collective investment in transferable securities (UCITS) – Alternative investment funds (AIFs) – Remuneration policies and practices of a UCITS management company or AIF manager – Substantive scope – Dividends paid to certain senior managers of a UCITS management company or AIF manager – Included – Conditions
(European Parliament and Council Directives 2009/65, Arts 14, 14a(1) and (2), and 14b(1)(r) and (3), 2011/61, Art. 13(1), and Annex II, points 1(r) and 2, and 2014/91, recital 7)
(see paragraphs 43-52, 54, 59-67, 83, operative part)
Fundamental rights – Charter of Fundamental Rights of the European Union – Right to property – Regulation of the use of property – Undertakings for collective investment in transferable securities (UCITS) – Alternative investment funds (AIFs) – Dividends paid to certain senior managers of a UCITS management company or AIF manager – Application of principles governing remuneration policies and practices – Limitations on the exercise of shareholder rights – Whether permissible
(Charter of Fundamental Rights of the European Union, Arts 17(1) and 52(1); European Parliament and Council Directives 2009/65 and 2011/61)
(see paragraphs 72-82)
Résumé
The requirements flowing from EU law regarding policies relating to the remuneration of investment managers can apply to the payment of dividends by those managers to some of their shareholder employees which are covered by the personal scope of that policy.
This is the case where the way in which those dividends are paid might encourage those employees to take risks detrimental to the interests of the managed organisations and funds and to the interests of the investors in those organisations and funds, and thereby facilitate the circumvention of the requirements flowing from the provisions relating to remuneration policies and practices.
In 2019, HOLD Alapkezelő Befektetési Alapkezelő Zrt. (‘HOLD’), a company the regular business of which is the management of undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs), was fined by the Magyar Nemzeti Bank (National Bank of Hungary). The practice at issue concerns the payment of dividends to some of its employees, which hold, directly or via companies controlled by them, shares it issued. These are, more specifically, employees who perform the duties of managing director, investment manager or portfolio manager.
According to the National Bank of Hungary, the dividends paid to the shareholder employees could result in those employees having an interest in HOLD generating short-term profits and thereby being induced to take risks that are not compatible with the risk profile of the investment funds managed by HOLD or with its management rules and the interests of the funds’ shareholders. As a result, the rules for the payment of those dividends circumvent the rules relating to remuneration policies in the financial services industry.
HOLD’s appeal against the decision of the National Bank of Hungary adopted in that connection led to the case being brought before the Kúria (Supreme Court, Hungary). That court asks the Court about the applicability of the requirements of Directives 2009/65 (
1
) and 2011/61 (
2
) on practices and policies for the remuneration of investment managers, such as those transposed into Hungarian law, to the dividends paid in the present case.
Asked to give a preliminary ruling, the Court defines the substantive scope of those requirements. It rules that the payment of dividends to certain employees can be covered by the provisions of Directives 2009/65 and 2011/61 relating to remuneration policies and practices, (
3
) even if the dividends are not paid in consideration for services rendered by those employees, but by virtue of the right to property those employees have as shareholders. According to the Court, those provisions apply to such dividends where the policy for the payment thereof is such as to encourage the employees concerned to take risks detrimental to the interests of the UCITS or AIFs managed by their company and to the interests of the investors in those organisations and funds, and thereby facilitate the circumvention of the requirements flowing from those provisions.
Findings of the Court
In the first place, the Court interprets Directives 2009/65 and 2011/61 in order to determine the personal scope of the remuneration policies and practices defined by those directives. Those policies apply to any payments or benefits of any type paid in consideration for professional services rendered by employees of UCITS management companies or AIF managers which come within the personal scope of those policies and practices.
Regarding dividends of shares in a UCITS management company or AIF manager, those dividends are not, admittedly, paid by way of such consideration, but by virtue of a right derived from ownership of the shares in the company. However, in accordance with Directives 2009/65 and 2011/61, variable remuneration must not be paid through vehicles or methods that facilitate the avoidance of the requirements of those directives governing remuneration policies and practices.
When the remuneration policy encourages risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the UCITS or AIFs managed by that company or manager, or detrimental to the interests of those UCITS or AIFs and their investors, and thereby facilitates the circumvention of the requirements flowing from the provisions of Directives 2009/65 and 2011/61 relating to remuneration policies and practices, that payment must be subject to the principles governing those remuneration practices and policies. In that context, the referring court must ascertain, more specifically, whether there is a connection between the profits generated by the UCITS and AIFs, the profits generated by the company and the amounts paid by as dividends such that employees have an interest in those UCITS and AIFs generating the highest possible profits in the short term. This would arise, for example, where a performance fee is paid by the UCITS or the AIF to the company concerned where a target return during a given reference period is exceeded and where that fee is redistributed, in whole or in part, by that company as dividends to the employees concerned or to the companies controlled by those employees, irrespective of the results generated by the UCITS or AIF after that period and, in particular, of the losses incurred by the UCITS or AIF. Other factors that must be ascertained are, inter alia, (i) the size and type of the shareholding of the employees concerned, (ii) the voting rights attached to those shares, (iii) the policy and decision-making process relating to the distribution of the profits of that company, and (iv) the potentially minor nature, compared with the professional services rendered, of the amount of the fixed remuneration paid to its employees.
In the second place, the Court states that the resulting interpretation of the directives complies with Article 17(1) of the Charter of Fundamental Rights of the European Union (‘the Charter’), which enshrines the right to property and is applicable to the ownership of shares and the right to receive dividends such as those in the present case.
The Court notes that the interpretation of Directives 2009/65 and 2011/61 does not call into question the right to property of the employees concerned in respect of the shares of the company for which they work and therefore does not constitute a deprivation of property for the purposes of the second sentence of Article 17(1) of the Charter. The fact remains that the application, which correlates with that interpretation, of the principles governing remuneration policies and practices to share dividends constitutes a regulation of the use of property within the meaning of the third sentence of Article 17(1) of the Charter. That regulation is capable of impairing the exercise of the right to property and, more specifically, the possibility for the shareholder employees concerned of deriving a benefit from that property.
Nevertheless, the resulting limitations on the rights of shareholders comply with the conditions required by the Charter. Indeed, they are provided for by law, that is, by Directives 2009/65 and 2011/61 and the national legislation transposing those directives, do not impair the very substance of the right to property, and meet objectives of general interest recognised by the European Union, namely the protection of investors and the stability of the financial system, in the light of which they appear to be proportionate.
(
1
)	Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ 2009 L 302, p. 32), as amended by Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 (OJ 2014 L 257, p. 186).
(
2
)	Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ 2011 L 174, p. 1).
(
3
)	That is to say, Articles 14 to 14b of Directive 2009/65 and Article 13(1) of, and points 1 and 2 of Annex II to, Directive 2011/61.