The European
Parliament adopted by 625 votes to 28, with 37 abstentions, a resolution
amending 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. The amendments are the result of
a compromise between Council and Parliament. The main amendments are as
follows:
Remuneration
policies: the text states
that the new obligation concerning remuneration policies and practices should
be implemented in a consistent manner and should cover all aspects of
remuneration including salaries, discretionary pensions benefits and any
other similar benefits. In this context, discretionary pension benefits
means discretionary payments granted by a credit institution to an employee
on an individual basis payable by reference to or expectation of retirement
and which can be assimilated to variable remuneration.
It is
appropriate to specify clear principles on sound remuneration to ensure that
the structure of remuneration does not encourage excessive risk-taking by
individuals or moral hazard and is aligned with the risk appetite, values and
long-term interests of the institution. These principles are as follows:
- the
remuneration policy is in line with the business strategy, objectives,
values and long-term interests of the credit institution, and
incorporates measures to avoid conflicts of interest;
- where
remuneration is performance related, the assessment of the performance
must be set in a multi-year framework in order to ensure that the
assessment process is based on longer term performance and that the
actual payment of performance-based components of remuneration is spread
over a period which takes account of the underlying business cycle of
the credit institution and its business risks. The total variable
remuneration must not limit the ability of the credit institution to
strengthen its capital base. Guaranteed variable remuneration must be
exceptional and occur only in the context of hiring new staff and is
limited to the first year;
- to minimise
incentives for excessive risk-taking variable remuneration should be a
balanced proportion of total remuneration. It is essential that an
employee's fixed salary represents a sufficiently high proportion of
their total remuneration to allow the operation of a fully flexible
variable remuneration policy, including the possibility to pay no
variable remuneration. In order to assure coherent remuneration
practices throughout the sector, it is appropriate to specify certain
clear requirements. Guaranteed variable remuneration is not consistent
with sound risk management or the pay-for-performance principle and
should, as a general rule, be prohibited;
- a
substantial portion, which is at least 40 % of the variable remuneration
component must be deferred over a period
which is not less than three to five years and is correctly aligned with
the nature of the business, its risks and the activities of the member
of staff in question. Remuneration payable under deferral arrangements
vests no faster than on a pro-rata basis. In the case of a variable
remuneration component of a particularly high amount, at least 60 % of
the amount is deferred. The length of the deferral period is established
in accordance with the business cycle, the nature of the business, its
risks and the activities of the member of staff in question;
- a
substantial portion, which is at least 50 % of any variable remuneration
should consist of shares, share-linked
instruments of the credit institution or investment firm, subject to the
legal structure of the institution concerned or, in case of a non-listed
credit institution, in other equivalent non-cash instruments, and where
appropriate, other long dated financial instruments that adequately
reflect the credit quality of this institution;
- in the
case of credit institutions that benefit from exceptional government
intervention: (i) variable 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) the relevant competent authorities
shall require credit institutions to restructure compensation in a
manner aligned with sound risk management and long-term growth,
including inter alia and when appropriate establishing limits to the
remuneration of Directors; and (iii) no variable remuneration should be paid
to the directors of that institution unless this is justified.
These
principles are applied by credit institutions at group, parent company and
subsidiary levels, including those established in offshore financial centres.
Review: by April 2013, the Commission shall
review and report on the provisions on remuneration, with particular regard
to their efficiency, implementation, enforcement, taking into account
international developments. That review shall identify any lacunae arising
from the application of the principle of proportionality to the provisions.
The Commission shall submit this report to the European Parliament and the
Council together with any appropriate proposals.
Provisions
to improve corporate governance, transparency and disclosure: The amendments state that:
- credit
institutions and investment firms that are significant in terms of their
size, internal organisation and the nature, the scope and the complexity
of their activities should be required to establish a remuneration
committee as an integral part of their governance structure and
organisation. The remuneration of the senior officers in the risk
management and compliance functions is directly overseen by the
remuneration committee;
- credit
institutions and investments firms should disclose detailed information
on their remuneration policies, practices and, for reasons of
confidentiality, aggregated amounts for those members of staff
whose professional activities have a material impact on the risk profile
of the institution. That information should be made available to
all stakeholders (shareholders, employees and the general public);
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 remuneration trends in accordance with the
categories of quantitative information that those institutions are required
to disclose under the Directive. The competent authorities should provide
CEBS with such information to enable it to conduct similar assessments at
Union level.
Home Member
State competent authorities shall collect information on the number of
individuals per credit institution in pay brackets of EUR 1 million and
upwards including the business area involved and the main elements of salary,
bonus, long-term award and pension contribution. This information shall be
forwarded to the Committee of European Banking Supervisors and it shall
disclose this information on an aggregate home Member State basis in a common
reporting format. The Committee of European Banking Supervisors may elaborate
guidelines to facilitate the implementation of, and ensure consistency of
information collected.
Implementing
Basel: the resolution states as follows:
- 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 the bank will be required to subject them to
a capital charge equal to the higher of the capital charge according to
this internally developed approach and 8% of the capital charge for
specific risk according to the standardised measurement method. It will
not be required to subject these exposures to the incremental risk
charge. It must, however, incorporate them in both the value-at-risk and
stressed value-at-risk measures;
- Article 152
of Directive 2006/48/EC requires certain credit institutions to provide
own funds that are at least equal to certain specified minimum amounts
for the three twelve month periods between 31 December 2006 and 31
December 2009. In the light of the current situation in the banking
sector and the extension of the transitional arrangements for minimum
capital adopted by the Basel Committee on Banking Supervision, it is
appropriate to renew this requirement for a limited period of time until
31 December 2011;
- in order not
to discourage credit institutions from moving to the internal
ratings-based (IRB) approach or advanced measurement approaches (AMA)
for calculating the capital requirements during the transitional period
due to unreasonable and disproportionate implementation costs, credit
institutions that have moved to the IRB approach or AMA since 1 January
2010 and which have therefore previously calculated their capital
requirements in accordance with the less sophisticated approaches may,
subject to supervisory approval, be allowed to use the less
sophisticated approaches as the basis for the calculation of the
transitional floor. Competent authorities should monitor their markets
closely and ensure a level playing field within all their markets and
market segments and avoid distortions in the internal market.
Stronger
Parliamentary Oversight: lastly, the text states
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.
The Commission
should review the application of these Directives to ensure that its
provisions are applied in an equitable way which does not result in
discrimination between credit institutions on the basis of their legal
structure or ownership model. It is empowered to adopt delegated acts in
accordance with Article 290 TFEU in relation to the matters set out in the
text. In this instance, the European Parliament or the Council have a 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.