EBA consults on variable remuneration for employees of investment firms
The European Banking Authority (EBA) is seeking responses to its consultation paper EBA/CP/2020/08 on variable remuneration for employees of investment firms. Interested parties have until 4 September 2020 to submit their responses.
Background
The Investment Firms Directive (IFD) mandated the European Banking Authority (EBA), in consultation with the European Securities Markets Authority (ESMA), to develop draft regulatory technical standards (RTS) on variable remuneration specifying the classes of instruments that satisfy the requirements of the IFD.
Remuneration rules under the IFD provide that at least 50% of variable remuneration should consist of only certain financial instruments. Where an investment firm does not issue any of the permitted financial instruments, regulators may approve the use of alternative arrangements, giving some flexibility to such employers.
EBA proposals
The EBA has proposed draft Regulatory Technical Standards on classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration (the Draft RTS) .
The Draft RTS aims to ensure a level playing field between credit institutions and investment firms by aligning where possible, with CRD IV remuneration requirements.
The recitals to the Draft RTS:
- Propose that instruments used for the purposes of variable remuneration should provide incentives for staff to act in the longer-term interest of the investment firm
- Provide for a wide set of instruments for the paying out of variable remuneration
- Outline the classes of instruments that can be used for variable remuneration
- Suggest that synthetic instruments or contracts between staff members and institutions may be used
Clarify the position for group investment firms where there is a clear link in credit quality.
The Draft RTS sets out the classes of instruments that are appropriate to be used for the purposes of variable remuneration and also provides for the write down, write up and conversion procedures.
The consultation paper simply invites responses on the clarity and appropriateness of the RTSs.
Next steps
Investment Firms will be conscious of the need to review their existing remuneration practices with the proposed RTS in mind and to assess the application of these RTS to their own operations.
For further information contact Dario Dagostino, Kevin Allen and Patrick Brandt, Financial Regulation Partners and Keavy Ryan, Partner and manager of our Incentives Group and Sinéad Prunty, Financial Regulation Knowledge Lawyer.
Date published: 1 September 2020