EBA publishes final draft technical standards to identify investment firms’ risk takers and to specify the instruments used for the purposes of variable remuneration

The European Banking Authority (EBA) published today two final draft Regulatory Technical Standards (RTS) on (i) the criteria to identify all categories of staff whose professional activities have a material impact on the investment firm’s risk profile or asset it manages (‘risk takers’) and (ii) on the classes of instruments that adequately reflect the credit quality of the investment firm and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration. The objective of these RTS is to define and harmonise the criteria for the identification of such staff and the use of instruments or alternative arrangements for the purposes of variable remuneration so as to ensure a consistent approach across the EU.

RTS to identify material risk takers

Risk takers will be identified based on a combination of qualitative and quantitative criteria specified in the RTS. To ensure that all risk takers are identified, members of staff are identified as having a material impact on the institution’s risk profile as soon as they meet at least one of the qualitative or quantitative criteria in the RTS or, where necessary because of the specificities of their business model, additional internal criteria.

Following the feedback received during the consultation phase, the qualitative criteria have been revisited to enhance the application of proportionality. The final draft RTS also clarify how the criteria should be applied on a consolidated and individual basis. Finally, some flexibility in calculating the amount of remuneration for the application of the quantitative requirements has been introduced similarly to the remuneration framework applicable under the Capital Requirements Directive (CRD).

In addition, the 0.3% of staff with the highest remuneration criterion has been included to be applied only by firms that have more than 1 000 staff in order to reduce the burden for small firms. The quantitative criteria are based on the rebuttable assumption that the professional activities of those staff would have a material impact on the investment firm’s risk profile or asset it manages.

RTS on the use of instruments and possible alternative arrangements for risk takers’ variable remuneration

The final draft RTS introduce requirements for investment firms regarding Additional Tier 1, Tier 2 and other instruments used for the purposes of variable remuneration, to ensure that they appropriately reflect the credit quality of the investment firm as well as, to specify possible alternative arrangements for the pay out of variable remuneration where investment firms do not issue any of the instruments referred to in Article 32 of the Investment Firms Directive (IFD).

The provisions in the RTS are aligned with Commission Delegated Regulation 527/2014 on classes of instruments that are appropriate to be used for the purposes of variable remuneration under the CRD to ensure that, in particular, groups of credit institutions and investment firms are able to use a common set of instruments for remuneration purposes.

Legal Basis

The EBA has been mandated, under Articles 30(4) and 32(1)(j) of the Directive (EU) 2019/2034, to develop, in cooperation with the European Securities and Markets Authority (ESMA), final draft RTS to specify the appropriate criteria to identify the categories of staff whose professional activities have a material impact on the risk profile of the investment firm or asset it manages; and to develop draft RTS to specify the classes of instruments that satisfy the conditions set out in point (j)(iii) of paragraph 1 of Article 32 and to specify possible alternative arrangements set out in point (k) of paragraph 1 of Article 32.