- The deadline for registering new and existing share plans online, as well as for filing annual online returns for all employment-related securities, is 6 July 2015.
- The European Banking Authority (EBA) has published an exchange of letters between it and the European Commission in respect of the application of the proportionality principle to certain remuneration requirements.
- The Financial Conduct Authority (FCA) has recently published a letter it sent to the chairs of remuneration committees in Tier 1 firms during November 2014 which sets out the FCA's key expectation in respect of, amongst other things, the operation of malus provisions during the 2014/15 remuneration round.
CONSERVATIVE BUDGET 2015
The first wholly Conservative Budget since 1997 will be on Wednesday 8 July. At this stage we are not anticipating any major announcements that will impact on remuneration policies or employee incentives.
Online returns and registration
Just to remind you that the deadline for registering new and existing share plans and for completing annual online returns for all employment-related securities is fast approaching.
As we have previously set out, in order to register your plans you must first be registered to use the ERS online service and it can take up to a week to obtain login details in the first instance. Since there are penalties for late filing and incorrectly completed or formatted returns, as well as the risk of losing the tax-advantaged status of an existing plan if it is not registered in time, we strongly recommend that you register your existing plans well in advance of the 6 July 2015 deadline.
If you do not register your existing plans, any tax advantages may be lost (this is the case even if the plan is already "approved" under the old HMRC approval process).
EBA and European Commission exchange of letters
You may recall that in our March Update we set out details of the consultation by the EBA on draft guidelines (Draft Guidelines) on sound remuneration policies under Article 74(3) and 75(2) of the CRD IV Directive (Directive) and disclosures under Article 450 of the Capital Requirements Regulation.
During May, the EBA published an exchange of letters between Andrea Enria (EBA Chair) and Paraskevi Michou (Acting Director General, European Commission Directorate General for Justice and Consumers). The letters (which pre-date the Draft Guidelines) set out the views highlighted in our March Update: broadly, that the EBA considers that the use of the words "in a manner and to the extent that is appropriate" in Article 92(2) of the Directive can be relied on as a ground for not applying certain remuneration policy requirements set out in Article 94(1) (namely those requirements in respect of the deferral of variable remuneration, its payout in instruments and, implicitly, the application of malus, which can only be applied if remuneration is deferred) to small and non-complex institutions. Whereas, the European Commission takes the view that general principles as implicitly referred to in the introductory part of Article 92(2) cannot justify the non-application of one or the other rules contained in that provision or in Article 94(1) stating that these provisions "lay down clear rules and leave no room for exceptions or exemptions."
Whilst the arguments may have moved on since these letters were originally sent, it is interesting to see the full context of the background in which the Draft Guidelines were published.
You should note that consultation on the Draft Guidelines closes on 4 June 2015.
FCA letter to Tier 1 remuneration committees
The FCA has recently published a letter it sent to the chairs of remuneration committees in Tier 1 firms during November 2014. The letter from Clive Anderson, the former Director of Supervision, made it clear that the FCA's specific focus during the 2014/15 remuneration round would be on the application of malus in response to cases of misconduct which impact consumers and market integrity.
The letter referred to the then proposed guidance on the operation of malus as set out in CP14/14, stating that it provided a clear indication of the FCA's expectation in this regard. Although it should be noted that the FCA subsequently revised this proposed guidance and consulted further in a guidance consultation (GC15/2) that closed to responses on 7 May 2015.
The letter made it clear that although the FCA’s focus would be on the application of malus, it would also be looking to see compliance in all areas of the Remuneration Code. This would include how companies had taken into account the risk of misconduct in setting their current year awards and it would be particularly interested to see how companies had updated their approach to take account of changes arising from the CRD IV Directive such as the bonus cap and the identification of material risk takers.
Again, as with the publication of the letter on proportionality referred to in the section above, although this letter was sent out over 6 months ago its recent wider publication is helpful for all financial services firms as it sets out clearly the FCA's proactive position on the operation of malus provisions in respect of variable remuneration (particularly where there has been misconduct which has had a wider social or market impact).