The European Banking Authority (EBA) publishes today the results of the survey on the implementation of CEBS Guidelines on remuneration policies and practices. The survey findings indicate that in most countries the Guidelines came into force on 1 January 2011 and that supervisors have actively assessed remuneration policies requiring, where needed, interventions in the remuneration structures and payouts of the variable component. While considerable progress has been reported with respect to the governance of remuneration, some areas of concern remain. Further supervisory guidance is needed in setting up the criteria for identifying risk takers as well as in the application of the proportionality principle and of the risk alignment practices.
The findings of the survey have showed a satisfactory implementation of the Guidelines into the respective legal and supervisory frameworks and good progress by the industry has been reported namely as to the practices in the governance of remuneration.
However, the scope of the Guidelines is one of the areas for concern as considerable variations exist in the extent to which the remuneration requirements are applied beyond the scope of the CRD.
With regard to the identification of risk takers, the survey has highlighted inconsistencies across institutions in the criteria used to identify staff that have a material impact on the firm’s risk profile. Furthermore, such criteria have not always proved to sufficiently grasp the risk impact aspect of the exercise.
Inconsistencies have also emerged in the application of the proportionality principle with practices varying from predetermined fixed criteria to open case-by-case approaches to determine if the set of specific remuneration rules should be applied to identified staff.
Finally, the survey has showed that risk alignment practices across the industry remain underdeveloped namely with regard to the interaction of parameters used for risk management and the structure of bonus pools.
In light of the shortcomings identified by the survey, it is welcomed that the Danish Presidency, in its January compromise text on the CRD IV package, has proposed to widen the scope of the mandate for the EBA to elaborate criteria to identify categories of staff whose professional activities have a material impact on the institution’s risk profile.
This survey is not the only tool through which the EBA monitors remuneration practices across the institutions of the Member States. The EBA will in the upcoming weeks issue two Guidelines on data collection on remuneration for high earners (individuals earning at least 1 million Euro p.a.) and quantitative information on remuneration by business areas in accordance with point 15(f) of part 2, Annex XII CRD. The EBA will disclose aggregate information on high earners and benchmark the quantitative information received towards the end of this year.
The Capital Requirements Directive 3 (CRD III) sought to develop risk-based remuneration policies and practices aligned with the long term interests of the institution aimed at avoiding short-term incentives that could lead to excessive risk-taking. This was seen as a key contributory reform in restoring overall financial stability after the 2007-2008 financial crisis. To facilitate the compliance of the remuneration principles included in the amended Annex V of the CRD, on 10 December 2010, CEBS, the EBA’s predecessor, published its final Guidelines on remuneration policies and practices and, in line with the entry into force of CRD III, set an implementation date of 1 January 2011.