On 4 March 2015, the European Banking Authority (EBA) published new draft guidelines on remuneration for firms caught by CRD IV, which encompasses banks and certain other financial institutions including some fund managers.
The key change to the current guidelines (published in 2010) is that all relevant firms should now apply compulsory deferral, payment in shares or other instruments, clawback and bonus capping. The UK has allowed small banks (including many UK branches of overseas banks), fund managers and other subsidiaries of banking groups and IFPRU firms not to apply these rules and so this would be a major change for them and their code staff, though some may already be complying on a voluntary/partial basis. The EBA says that the change is on the basis of legal advice which it has received which, in summary, says that blanket disapplication for certain firms is not permitted by the underlying legislation - though the EBA implies that where only a small amount of remuneration is paid in variable remuneration, some disapplication may end up being permissible.
There is likely to be heavy lobbying against these proposals. Comments are being sought until the end of May 2015 and final guidelines are intended to be published later in the year for implementation in member states for 2016 pay. While implementation is not mandatory, justification for any departure by relevant national authorities is required and can be challenged where there is sufficient legal basis to do so. The UK regulatory authorities’ reaction to these proposals will therefore be key, though customarily they have not publicly played their hand on proposals until final guidelines have been issued.
For a link to the draft guidelines, click here.