Avocat à la Cour – Associée
LOYENS & LOEFF LUXEMBOURG
Anni Elfassi intervient dans le cadre de la conférence rémunération des cadres et dirigeants le 3/12/2015 à Luxembourg.
The law of 23 July 2015 (the “2015 Law”) implementing inter alia directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms,(“CRD IV”)’1′ has brought about changes which mainly relate to the access to financial sector activities, corporate governance and remuneration, prudential rules, capital buffers and administrative penalties. These changes are now reflected in the amended law of 5 April 1993 on the financial sector (the “New FSL”).
The CRD IV and Regulation (EU) 575/2013 ‘2’ (“CRR”) recast and replace the Capital Requirements Directives (i.e. the Banking Consolidation Directive ‘3’ and Capital Adequacy Directive ‘4’ ).
The new provisions of the 2015 Law will apply in particular to “CRR institutions” which are defined in the New FSL as “institutions within the meaning of article 4 (1) (3) of the CRR”, i.e. credit institutions or investment firms within the meaning of the CRR.
The new provisions regarding remuneration introduced by the 2015 Law in the New FSL are briefly outlined below…
• Identified staff
The new rules on remuneration apply to staff members who have a material impact on an institution’s risk profile.
• Fixed / variable remuneration
The 2015 Law makes a distinction between fixed and variable remuneration:
(a) the basic fixed remuneration (salary) must reflect the relevant professional experience and organisational responsibility as set out in an employee’s job description as part of the terms and conditions of employment; and
(b) variable remuneration (bonus) must reflect a sustainable and risk-adjusted performance as well as performance in excess of that required to fulfil the employee’s job description as part of the terms of employment.
• Bonus cap
For variable remuneration, the following two principles now apply:
(a) the variable component may not exceed 100% of the fixed component of each individual’s aggregate remuneration;
(b) the shareholders of the institution (excluding staff concerned by the ratio) may approve a higher maximum level of the ratio between the fixed and variable components of remuneration provided that the overall level of the variable component does not exceed 200 % of the fixed component of the aggregate remuneration for each individual.
• Malus and clawback
Up to 100 % of the total variable remuneration must be subject to malus or clawback arrangements. Institutions must set specific criteria for the application of malus and clawback which may apply in particular situations.
The New FSL now expressly states that at least 50 % of the variable remuneration must consist of a balance between (i) shares (or equivalent equity interests) and (ii) instruments which reflect the credit quality of the institution as a going concern.
Equally, the New FSL now expressly states that at least 40% of the variable remuneration must be deferred over a period of not less than three to five years. When the amount of the variable remuneration component is particularly high, at least 60% must be deferred.
Staff members are required to undertake not to use personal hedging strategies or remuneration and liability-related insurance to undermine the risk alignment effects incorporated in their remuneration arrangements. Furthermore, the payment of variable remuneration through instruments or methods that facilitate non-compliance with the New FLS or the CRR is now also expressly prohibited. This is likely to affect the effectiveness of structures that were designed to give banks additional flexibility regarding remuneration.
The rules regarding the fixed to variable ratio will apply to remunerations awarded for services provided or work performed regardless of the date of entry into force of the contracts on the basis of which these remunerations are due.
‘1’ Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.
‘2’ Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (CRR).
‘3’ Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions.
‘4’ Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions.
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