10 December 2010
The Committee of European Banking Supervisors (CEBS) has published today its final Guidelines on Remuneration Policies and Practices.
Under the revised CRD III, as agreed upon by the European institutions, CEBS is required to elaborate and issue guidelines on sound remuneration policies in the financial sector in order to facilitate the compliance of the remuneration principles included in the amended Annex V of the CRD.
Article 22 of the revised CRD lays down the fundamental principle whereby institutions are required to ensure that their remuneration policies and practices are consistent with their organisational structure and promote sound and effective risk management.
CEBS had already published a set of High-level Principles for Remuneration Policies (Rem. HLP) on 20 April 2009 aimed at assisting in remedying unsound remuneration policies. These principles also built on the remuneration work carried out by other bodies, namely the Financial Stability Board and the European Commission. An extensive implementation study regarding the national implementation of the High-level principles was carried out by CEBS in the first semester of 2010 and served as an input to the current guidelines.
In revising the Guidelines, CEBS benefited from the views gathered from a wide spectrum of market participants and from academia. Input was provided through 39 responses to a public consultation and through a public hearing held at CEBS premises. Furthermore, the Committee of European Securities Regulators (CESR) rendered an opinion which placed particular focus on the scope of the guidelines and on the proportionality principle vis-à-vis firms providing investment services.
CEBS has considered the feedback received (see feedback document) and has revised its initial proposal in order to address the main issues and concerns raised, namely those related to proportionality, equity-linked and other instruments as part of variable remuneration, distribution of such instruments and retention periods.
As to proportionality, a key principle applying both to the general as well as to the specific requirements of the CRD III, the revised Guidelines have included further neutralisation of some requirements for investment firms if they have a lower prudential risk profile.
In the chapter on groups, minor amendments have been introduced to clarify the application of the guidelines on a consolidated basis, thereby confirming the proportional application of the guidelines on a group-wide basis.
With reference to shares and share-linked and other alternative instruments as part of variable remuneration, CEBS has given further guidance on the features required to accept alternative instruments as part of variable remuneration'. CEBS will monitor the regulatory and market developments regarding such alternative instruments and will, if needed, provide further guidance on the use of these instruments.
Finally, in response to the concerns about retention periods, CEBS's Guidelines have further emphasized the difference between deferral and retention periods and have added some further proportionality for retention periods of deferred instruments.
The final Guidelines shall be implemented as from 1 January 2011 in line with the entry into force of CRD III. CEBS has planned to carry out an implementation study in the fourth quarter of 2011 also in response to the concerns raised with regard to the convergent application of the CRD and the guidelines within the EEA.