The EBA published today the final guidelines on sound remuneration policies, together with an opinion on the application of proportionality. We are preparing a detailed briefing which we will circulate in the new year but wanted to share a few headline points with you.
The good news is that the EBA is delaying the entry into force of the new guidelines until 1 January 2017.
Consistent with its initial proposal, the EBA is recommending legislative changes to CRD4 to ensure a uniform approach to proportionality and the potential exemptions for smaller and non-complex institutions or for individuals with low variable pay. But the EBA’s recommendation is that any exemptions only cover deferral obligations and the requirement to use instruments and do not extend to the “bonus cap”. The EBA is standing firm on the idea that the maximum ratio of fixed to variable pay should apply to all institutions and individuals in scope.
Whether the EBA’s recommendations will be adopted and the legislation amended before the guidelines come into force will depend on political consensus between the Council, the Parliament and the Commission. In the meantime, the existing 2010 CEBS guidelines will continue to apply but supplemented by the published legal opinion on the acceptability of proportionality under CRD4. To add to the potentially conflicting regimes, local regulators may also issue their own guidelines in anticipation of the EBA guidelines coming into force.
What to expect next year
- Within two months of the publication on the EBA website of the translation of the guidelines into EU official languages: local regulators will have to say whether they intend to comply with the EBA guidelines (and explain the reasons for not complying under the ‘comply or explain’ principle). Remember that the EBA has no direct claim against financial institutions based on the guidelines!
- By the end of March: ESMA is due to publish the UCITS guidelines on remuneration.
- By the end of June: The EU Commission is due to publish its report on the application and impact of the remuneration provisions in CRD4, including a possible revision of the directive building on today’s opinion from the EBA.
- The new guidelines will come into force on 1 January 2017.
- Watch out for any statement on remuneration from the ECB which has the potential to be more effective than the EBA guidelines, at least for the banks it supervises directly.