CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

CRD IV for Investment Firms
CP13/6
Proposals on remuneration provisions carried across from CRD III
3.35 We intend to transpose the Directive articles that carry across provisions on remuneration from
CRD III into SYSC 19: The Remuneration Code and the General Guidance on Proportionality –
where appropriate.
New CRD IV requirements on remuneration
3.36 CRD IV also contains a small number of new requirements and policy changes for remuneration,
notably:
• the limits on bonuses (‘bonus caps’);
• areas of national discretion related to bonus caps; and
• the possible use of the principle of proportionality in relation to bonus caps.
3.37 The CRD IV regime will be supplemented by the guidelines and technical standards to be issued
by the EBA. These would cover:
• guidelines on sound remuneration policies;
• regulatory technical standards (by 31 March 2014) setting out criteria to identify categories
of staff whose professional activities have a material impact on the institutions risk profile
and therefore are subject to the remuneration provisions 6 ; and
• further guidelines and technical standards referred to under each subject below.
3.38 We set out below the key features of these CRD IV policy changes.
Limits on bonuses
3.39 The most significant policy changes on remuneration in CRD IV are the ‘hard’ limits to the
variable component (bonus caps) in article 94(1)(g) of the Directive. These are:
• A basic ratio of 1:1 which can only be increased to 1:2 with shareholder approval (with a quorum
of 50% of shareholders, 66% of votes in favour would be required; and, if that quorum is not
reached, 75% of votes in favour) guidelines on sound remuneration policies; and
• A maximum of 25% of the total variable remuneration (where it consists of long term
financial instruments) may be discounted with reference to factors reflecting risk inherent in
the instruments. The EBA is tasked to issue guidelines by 31 March 2014 on the applicable
notional discount rate taking into account all relevant factors such as inflation rate and risk,
which includes length of deferral. The EBA guidelines will also need to consider how to
incentivise the use of instruments which are deferred for a period of not less than 5 years.
Areas of national discretion
3.40 However, the Directive also includes the following areas of national discretion where Member
States (and the CA in the case of the last discretion) may:
• lower the upper limit set for bonuses;
6 EBA issued a ‘Consultation on draft Technical Standards for the definition of material risk takers for remuneration purposes’ on
21 May 2013 (available at the EBA website: www.eba.europa.eu/-/consultation-on-draft-technical-standards-for-the-definition-ofmaterial-risk-takers-for-remuneration-purposes).
Financial Conduct Authority July 2013
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