In the aftermath of the financial crisis the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) introduced a number of rules regarding the remuneration policies and practices of credit institutions and investment firms. Pursuant to Article 161(2) of the CRD, the European Commission (Commission) was required to review the efficiency, implementation and enforcement of these remuneration rules, and provide a report to the European Parliament and Council on its findings.

On 28 July 2016, the Commission published its report on the Remuneration Rules for Credit Institutions and Investment Firms wherein it expressed the opinion that these rules are generally effective in curbing the excessive risk-taking behaviour and short-termism they were introduced to address. However, taking into account work done by the European Banking Authority (EBA), together with other surveys and consultations, the report concludes that, in certain cases, compared to their prudential benefits, some of the rules may be too costly and burdensome to apply. This is particularly the case when the rules on deferral and pay-out in instruments are applied to small and non-complex institutions or to staff with low levels of variable remuneration, and when listed institutions are required to use shares to remunerate their staff.

In its assessment the Commission considered a number of questions regarding the scope of the application of the rules. One of these was the application of the rules at group-level and the concerns of UCITS and AIF managers, which form part of a CRD-regulated group. These managers argued that having to comply with both the CRD remuneration rules and the sectoral remuneration rules would disadvantage them as against independent UCITS and AIF managers. The Commission highlights, however, that staff of UCITS and AIF manager subsidiaries need to comply with CRD rules only to the extent that they are identified as having a material impact on the risk profile of the group.

Next steps

The Commission will now conduct an impact assessment. Following this, it will consider presenting a proposal for certain amendments to the CRD IV/CRR remuneration rules.

The Commission will also examine the implications of the report's findings for the remuneration rules set out in both UCITS V and AIFMD. This review may prove helpful in providing more clarity on the application of the proportionality principle and cross sectoral alignment as requested by ESMA in its letter to the Commission of 31 March 2016. This letter was sent following the publication of ESMA's final Guidelines on sound remuneration policies under the UCITS Directive and AIFMD. As previously reported, these guidelines excluded guidance on the dis-application of certain requirements on the pay-out process. ESMA did not include such guidance in the final report due to "legal analysis that had called into question the existing understanding of the proportionality provisions under the UCITS and AIFM Directives". In its letter to the Commission, ESMA explained the need to ensure alignment with the AIFMD Remuneration Guidelines and the obligation to closely cooperate with the EBA "in order to ensure consistency with requirements developed for other financial services sectors, in particular credit institutions and investment firms".