The year 2021 will see changes regarding remuneration policies in the finance sector (these will especially affect banks and brokerage houses). We have presented below the new EBA guidelines and invite you to take part in the consultation process. You will also find below information about a prepared amendment to the Banking Law, about the EBA’s call for cautious payment of variable components of remuneration, and about the EIOPA’s proposals on modifying the Solvency II regime.
Work on the EBA guidelines concerning remuneration in the banking and investment sector
The European Banking Authority (EBA) is preparing an update of its guidelines on remuneration in banks and investment firms. The open consultation stage is currently underway. The new guidelines are intended to update the existing ones, issued in 2016.
The new guidelines for the banking sector are not revolutionary and to a large extent entail adapting to the changes that were introduced by CRD V as compared to CRD IV. Amongst others, the draft version of the guidelines:
- emphasises the need to comply with the principle of equal remuneration for employees, regardless of gender;
- makes more precise the principles for granting severance pay and retention bonuses to key employees;
- modifies the periods of minimum deferment of payment of variable remuneration;
- places an emphasis on increasing the percentage of remuneration paid out in the form of financial instruments.
You can read below about the changes in Polish law as a result of CRD V.
Investment firms (brokerage houses)
The guidelines for investment firms are linked to the IFD/IFR package and are of importance above all for the brokerage houses of a medium system significance (Class 2). The general direction of the guidelines is similar as for the guidelines for the banking sector, but takes into account other sector-related specific features.
As regards bringing the Polish legal system into line with the remuneration issues linked to the IFD/IFR package - since October, pre-parliamentary work has been ongoing on an amendment to the Act on Trading in Financial Instruments.
Adapting to meet the EBA’s expectations may require not only a review of the remuneration policies, but also changes to individual employment or managerial contracts with key employees. In addition, the obligation to comply with the principle of neutrality of remuneration as regards gender may, in certain cases, mean an obligation for institutions to monitor pay gap between women and men.
Comments can currently be submitted regarding the draft guidelines. Consultations for the banking sector will last until 29 January 2021, and for brokerage houses - until 17 March 2021.
CMS is participating actively in the process of submitting comments. We are also making it possible for our clients to send their comments. Once we have edited them, we will present them to the EBA. If you would like to avail of this possibility, please send us your comments by 15 January 2021 (for banks) and by 1 March 2021 (for brokerage houses).
The full texts of the consultation documents are available at these links: EBA - Consultation document - CRD | (europa.eu) (banks), EBA - Consultation document - IFD/IFR | (europa.eu) (brokerage houses).
Amendments to the Banking Law in the Lower House of the Polish Parliament (Sejm)
On 28 December 2020, the Sejm started working on draft amendments to the Banking Law aimed, amongst others, at bringing it into line with CRD V with regard to the remuneration of key employees. At the same time amendments to secondary legislation are being prepared.
The main directions of the amendments are as follows:
- defining the category of personnel having an impact on a bank’s risk profile, including defining the minimum remuneration amount that justifies classifying an employee as such;
- specifying the institutions that can apply the provisions concerning remuneration policies to a limited extent;
- setting the threshold of variable remuneration that makes it possible to apply the remuneration policy to an employee to a limited extent;
- making it more precise on what principles the requirements concerning remuneration policy apply in a capital group operating on a cross-border basis
- extending to 4 years the minimum period for deferring the variable remuneration.
Once they enter into force, the amendments will make it necessary to review remuneration policies and to possibly modify them. However, all in all, we take a positive view of the changes. The proposed amendments will make it possible, in many cases, to avoid applying the most onerous solutions, e.g. those concerning deferring small amounts of variable remuneration. It is possible, therefore, that lawmaker will permit the solution that we often propose to our clients: applying a minimum, non-deferrable remuneration due to the principle of proportionality.
Here is a link to the Sejm’s website with the draft: Government legislative draft (Sejm)
The EBA upholds its recommendation for more cautious remuneration policies
On 15 December 2020, the EBA upheld its March recommendation that banks should adopt a cautious policy concerning dividends and payment of variable remuneration. The reason for this is the ongoing economic uncertainty resulting from the COVID pandemic.
The EBA points out that banks should counteract the weakening of the capital base of the entire sector. An element of such actions should be to apply longer deferment periods and increase the proportion of remuneration paid out in the form of financial instruments, as compared to variable remuneration in cash.
The EBA also announced that it will be encouraging domestic regulators to continue to monitor remuneration policies. It cannot be ruled out that, as was the case in the spring, the Financial Supervision Authority will issue its own statement (following the EBA’s one) setting out its own expectations more precisely.
Adapting to meet the EBA’s expectations may require not only a review of the remuneration policies, but also changes to individual employment or managerial contracts with key employees.
The full text of the EBA’s announcement is available at this link: EBA - COVID-19 - December | (europa.eu)
The EIOPA recommends greater flexibility
The European Insurance and Occupational Pensions Authority (EIOPA) carried out a review of the functioning of the Solvency II Directive and on 17 December 2020 issued an opinion on this matter. With regard to remuneration in insurance companies, the EIOPA proposes to modify Delegated Regulation 2015/35 so as to introduce an exemption from the obligation to defer variable remuneration with respect to:
- remuneration not exceeding EUR 50,000;
- insurance companies with a low risk profile.
At the same time, EIOPA recommends that the obligation to have a written remuneration policy lie with each insurance company, and that such policy be reviewed according to the same rules as other policies (e.g. concerning risk management).
Of course, the above proposals are merely recommendations, which may - but do not have to be - taken into account in the modifications of the regulatory framework of Solvency II. However, they show the most likely direction of the amendments.
Link to the EIOPA’s website: EIOPA - Solvency II review | (europa.eu)
If you have any additional questions or need further assistance with regard to employment law regulations, do not hesitate to contact us.