The Committee
on Economic and Monetary Affairs adopted the report drawn up by Arlene
MCCARTHY (S&D, UK) on the proposal for a directive of the European
Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC
as regards capital requirements for the trading book and for re-securitisations,
and the supervisory review of remuneration policies. It recommended that the
European Parliament’s position at first reading under the ordinary
legislative procedure (formerly known as the codecision procedure)
should be to amend the proposal as follows:
Remuneration
policies: the report states that the Directive
lays down core principles on remuneration policy. Those principles should be
applied consistently by Member States in a manner and to the extent that is
proportionate to the nature, scope, complexity and riskiness of the
activities and the size and internal structure of the credit institution or
investment firm concerned. The Directive should not preclude Member States
from adopting additional measures taken in the context of financial support for
specific banks.
The
committee’s amendments aim at the following:
- bonuses must
be awarded on the basis of long term
performance and not be guaranteed with no 'golden parachutes'
that reward failure;
- in any
event, the variable remuneration component must not exceed 50 % of the
total remuneration of the individual concerned;
- firms must
publicly disclose information
on their remuneration policies and payments,
including payments by business unit and to individual
directors;
- in the case
of credit institutions that are continuing to benefit from exceptional
government intervention:· (i)remuneration must be strictly limited
as a percentage of net revenues when it is inconsistent with the
maintenance of a sound capital base and timely exit from government support,
(ii) no variable remuneration must paid to the directors of that
institution; (iii) the total remuneration of each director of that
institution must not be in excess of EUR 500 000;
- the
assessment of performance must be set in a multi-year framework over a
period of at least three years in order to ensure that the assessment
process is based on longer-term performance and the actual payment of
performance-based components of remuneration must be spread over a
period which takes account of the underlying business cycle of the firm
and its business risks;
- in alignment
with FSB principles, a substantial proportion of the variable
remuneration component should be deferred over a sufficient period; the
size of the deferred proportion and the length of the deferral period
must be established in accordance with the business cycle, the nature of
the business, its risks and the activities of the member of staff in
question; remuneration payable under deferral arrangements must vest no
faster than on a pro-rata basis; at least 40 % of the variable
remuneration component must be deferred; in the case of a variable
remuneration component of a particularly high amount at least 60 % of
the amount must deferred and the deferral period must be no less than
five years;
- furthermore,
the variable remuneration, including the deferred portion, vests only if
it is sustainable according to the financial situation of the credit
institution as a whole, and justified according to the performance of
the credit institution, the business unit and the individual concerned.
In particular an individual’s deferred portion will be reduced in
proportion to the underperformance of the institution, the business unit
and the individual by means of malus or clawback against the deferred portion.
Any malus or clawback must be reported to supervisors along with the
identification of the individuals to whom it applies, taking into
account the assessment of suitability for holding positions of senior
management, risk-takers and control functions or being in that income
bracket;
- payment of
at least 50% of the deferred part of the bonus should be made in shares
or share-linked instruments of the credit institution or investment
firm.
Provisions
to improve corporate governance, transparency and disclosure: the report aims to strengthen effective corporate governance and
transparency. The amendments state that:
- credit
institutions that are significant in terms of their size, internal
organisation and the nature, the scope and the complexity of their
activities shall establish a remuneration committee, which will
be constituted in such a way as to enable it to exercise competent and
independent judgment on remuneration policies and practices and the
incentives created for managing risk, capital and liquidity;
- the Chair
and the members of the remuneration Committee shall be members of the
management body who do not perform any executive functions in the credit
institution concerned. When preparing such decisions, the remuneration
committee shall take into account the long-term interests of
shareholders, investors and other stakeholders in the credit
institution;
- firms must publicly
disclose information on their remuneration policies and payments,
including payments by business unit and to individual directors.
National
and EU wide benchmarking: in order further to
enhance transparency as regards the remuneration practices of credit
institutions and investment firms, the competent authorities of Member States
should collect information on remuneration to benchmark institutions in
accordance with the categories of quantitative information that those
institutions are required to disclose under the Directive. The competent
authorities should provide the European Banking Authority (EBA) with such
information to enable the EBA to conduct similar benchmarking at Union level.
The EBA and national supervisors should promote a common international
structure for disclosure of the number of individuals in pay brackets of EUR
1 million and above, including the business area involved and the main
elements of salary, bonus, long-term award and pension contribution. All
information collection and use must be in line with all relevant provisions
of EU data protection legislation, including Directive 95/46/ECand Regulation
(EC) No 45/2001.
Implementing
Basel: the committee endorses Commission
proposals implementing agreements at Basel, and proposes amendments in the
following areas:
- it is
necessary to reflect the further Basel decision to exclude
correlation trading from the new trading book requirements. The
Directive lays down limited exceptions for certain correlation trading
activities, where banks may be allowed by their supervisor to calculate
a comprehensive risk capital charge subject to strict minimum requirements.
In such cases it might be appropriate to establish a floor to the
capital requirement. Having regard to the fact that the Basel Committee
on Banking Supervision is conducting an impact study on the capital
charges for securitisation positions in the trading book, including
those that would result from the specific treatment for correlation
trading, the Commission should report to the European Parliament and the
Council about any measures agreed at international level regarding the
methodology and minimum levels and the Commission should be empowered to
adopt delegated acts in accordance with Article 290 of the Treaty on the
Functioning of the European Union for the purposes of setting such a
floor;
- banks
investing in re-securitisations are required under Directive 2006/48/EC
to exercise due diligence also with regard to the underlying
securitisations and the non-securitisation exposures ultimately
underlying the former. For a better understanding of the effectiveness
of those provisions for securitisations and re-securitisations, the
Commission should comply with the tenth paragraph of Article 156 of
Directive 2006/48/EC which provides for a Commission report on the
expected impact of Article 122a, and submit that report to the European
Parliament and the Council, together with any appropriate proposal, by
31 December 2009. Pending such a review, additional requirements for
'highly complex' re-securitisation should not be covered in this
Directive;
- the
Commission should review the operation of Article 122a of Directive
2006/48/EC once it is implemented and assess what amendments are
necessary, including whether it is adequate to ensure due diligence for
securitisation, including re-securitisations.
Stronger
Parliamentary Oversight: lastly, the report notes
that the measures in the Directive are steps in the reform process in
response to the financial crisis. In line with the conclusions of the G-20,
the Financial Stability Board and the Basel Committee on Banking Supervision
further reforms may be necessary, including the need to build
counter-cyclical buffers, "dynamic provisioning", the rationale
underlying the calculation of capital requirements in Directive 2006/48/EC
and supplementary measures to risk-based requirements for credit institutions
to help constrain the build-up of leverage in the banking system. In order to
ensure appropriate democratic oversight of the process, the European
Parliament and the Council must be involved in a timely and effective manner.
In this
instance, the European Parliament or the Council have the period of three
months from the date of notification to object to a delegated act. At the
initiative of the European Parliament or the Council, this period can be
prolonged by three months in significant areas of concern. The European
Parliament and the Council may inform the other institutions of their
intention not to raise objections. This early approval of delegated acts is
particularly indicated when deadlines need to be met, for example to meet
timetables set in the basic act for the Commission to adopt delegated acts.