Legal scope: The reference in paragraph 8 of the draft guidelines to the definition of financial institutions of the EBA Delegated Regulation and the MiFID II definition of investment firms is very far-reaching and not in line with the scope of the IFD framework and thus not covered under the EBA’s mandate in this context. This would involve several entities which are not in scope of the IFD framework but provide MiFID services (such as credit institutions providing MiFID services). The scope of the EBA guidelines should be clearly limited to the Level 1 scope of investment firms in the meaning of Article 2 IFD (authorised and supervised under MiFID II) which do not meet the conditions of Article 12 IFR. Therefore, we request to amend the addressees of the draft guidelines (paragraph 8) as proposed in our attached response.
Policies for all staff: We also refer to our general comment in the introduction where we ask for a voluntary approach of Title III for all staff members because these requirements on remuneration policies are limited to identified staff (cf. Article 30(1) IFD).
In general, the proposed requirements on gender neutral remuneration policies are sufficiently clear. We welcome the approach to distinguish between general principles and additional aspects which an investment firm may consider.
However, we request amending paragraph 26 of the draft guidelines as proposed in our attached response.
In practice, job descriptions for all staff members are not the norm. In our view, the aim of equal pay for male and female workers for equal work or work of equal value could be achieved through a general documentation and determination of the positions (and not of each staff member) based on assessments and scoring systems on skills, knowledge, activities or tasks.
Remuneration committee at group level (paragraph 48 of the draft guidelines): We welcome the clarification that a remuneration committee (where it is required) might be established at group level. However, the reference in paragraph 48 of the draft guidelines should be amended as proposed in our attached response.
Participating in meetings of the risk committee (paragraph 58 of the draft guidelines): In our view, it is not necessary for members of the risk committee to participate in all meetings of the remuneration committee. It should be clarified that they should have the possibility to participate when appropriate. This would be in line with the Level 1 requirements which state that the risk committee has access to information on the risks to which the investment firm is or may be exposed (cf. Article 28(5) IFD). Moreover, it makes no sense to require a member of the remuneration committee to participate in each meeting of the risk committee. All questions regarding the tasks of the remuneration committee should be discussed within the remuneration committee where a member of the risk management committee can provide input. This would be a much better approach as a member of the remuneration committee would be mandated to attend meetings of the risk management committee.
We welcome the general clarification in paragraph 70 of the draft guidelines that specific remuneration requirements of subsidiaries should be taken into account. However, we suggest certain improvements to clarify the group context as follows:
- Structure of the guidelines: The guidelines refer on several sections and paragraphs to group issues (such as sections 5.3, 5.4, 5.5). In addition, section 3 of the guidelines addresses further group requirements. In order to improve the clarity, readability and application of the guidelines, the scope of the group application on a consolidated level should be clarified exhaustedly in only one section (such as section 3). This would help to better understand what should ultimately apply in the group context and which entities of the group would be part of the consolidation.
- Terms and definitions used: We request to review all references to ‘subsidiaries’, ‘investment firms as subsidiaries’, ‘consolidating parent investment firm’, ‘consolidating institution’, ‘EU parent investment firm’ in all affected sections. It seems that the terms used do not comply with the definitions and scope of the prudential consolidation of IFD/IFR framework in all cases. For example, the parent company of an investment firm group is not always an investment firm.
- Identified staff that has a material impact on the groups risk profile: We request deleting the reference to identified staff that has a material impact on the groups risk profile in paragraph 72 of the draft guidelines as proposed in our attached response.
Such category of staff is neither required by Article 30(1) IFD nor determined in the final report of the EBA on providing a draft RTS on identified staff. We are aware of a discussion regarding the CRD IV remuneration requirements which was largely driven by the application of the bonus cap to certain group risk takers being part of a subsidiary with sector specific requirements. This discussion is closed by the new legal group requirements in Article 109 CRD V. Moreover, as long as the IFD framework does not require a bonus cap for investment firms and the EBA argues that the IFD remuneration requirements are consistent with other sector-specific requirements (such as the remuneration requirements under the AIFMD or UCITS Directive), we do not see the need to establish a new category of staff that has a material impact on the group’s risk profile.
- Scope of application on individual and consolidated basis: We request to review and clarify the scope of application of the guidelines on individual and consolidated bases in a group context. As we understand Article 25(4) IFD, the following approach shall apply:
(1) Application to investment firms in Member states on an individual level (Article 25(4) second sub-paragraph IFD): This approach is addressed in paragraph 75 of the draft guidelines, but with incorrect terms in the group context. Moreover, the scope of application in the draft guidelines does not involve cases where the group capital test of Article 8 IFR is applied (cf. Article 25(4) second sub-paragraph IFD). We therefore ask the EBA to amend paragraph 75 first sentence as proposed in our attached response.
(2) Application to investment firms as subsidiaries of a banking or insurance group: These investment firms in Member states are required to apply the remuneration rules on an individual basis (see above) independent of the fact that they are subsidiaries of a banking or insurance group. The exemptions of Article 6 IFR addressed to such investment firms does not cover the remuneration requirements. This new approach is important in practice (in particular in a banking group) and reflects also the new Article 109(4)a) CRD V according to which the CRD remuneration requirements shall not apply to subsidiary undertakings established in the Union where they are subject to specific remuneration requirements in accordance with other Union legal acts (such as the IFD). It would be helpful to clarify this understanding in the guidelines.
(3) Investment firm groups – scope of consolidation: According to Article 25(4) third sub-paragraph of the IFD, member states shall ensure that the remuneration requirements are applied to investment firms on a consolidated basis where prudential consolidation as referred to in Article 7 IFR is applied. That approach is already clarified in Paragraphs 69 and 70 of the draft guidelines. However, in view of our general remarks on the application of the remuneration policies to all staff and the scope of prudential consolidation as referred to in Article 7(1) IFR, we request to amend the first sentence of Paragraph 70 of the draft guidelines as proposed in our attached response.
(4) Subsidiaries with sector-specific requirements: Although Article 25(4) IFD lacks concrete guidance on how to deal with subsidiaries with sector-specific remuneration rules, the EBA takes a flexible group approach to these entities. We welcome the clarification in the third sentence of paragraph 70 of the draft guidelines that specific remuneration requirements of subsidiaries should be taken into account at consolidated level. Due to a lack of regulation compared to the new Article 109 CRD V, this is important in practice for subsidiary undertakings that are not themselves subject to the IFD (such as management companies licenced under the AIFMD/UCITS Directive) to which their own sector-specific remuneration requirements apply on an individual basis.
(5) Third-party context: Sentences 2 - 3 of Paragraph 75 of the draft guidelines only deal with entities established in the EU being a subsidiary of a parent investment firm in a third country. However, Article 25(4) IFD also addresses exemptions for subsidiaries established in third countries which should also be clarified in in the guidelines. According to Article 25(4) fourth sub-paragraph of the IFD, Articles 25 - 35 IFD shall not apply to subsidiary undertakings included in a consolidated situation that are established in third countries where the parent undertaking in the union can demonstrate to the competent authority that the application of the remuneration requirements is unlawful under the laws of the third country where these subsidiaries undertakings are established. Moreover, in view of a better understanding, it could be helpful to separate the third-country approach (sentences 2 - 3 of Paragraph 75 of the draft guidelines) from the application to investment firms on an individual basis (cf. sentence 1 of Paragraph 75 of the draft guidelines).
In general, we agree with the proposed application of waivers within section 4. However, we would like to request to review and amend the terms used in the group context. The parent company of an investment firm group is not always an investment firm. The determination of the effective ratio between the variable and fixed remuneration is limited to identified staff. This applies to the following paragraphs 85 and 86 (please see our proposal for amendment in the attached response).
Regarding the criteria for application of the proportionality principle addressed in paragraph 81 of the draft guidelines, we would like to highlight that the amount of assets under management could not be a stand-alone criterion for a risk measurement approach. We are aware that the amount of assets under management is a threshold for the own capital requirements, and this is appropriate for that purpose since operational risks could affect all portfolios managed. However, in avoiding risk taking through incentives by remuneration, the nature, scope and complexity of the activities should be relevant (such as the underlying risk profiles of the business activities that are carried out). In addition to the authorised activity, the type of investment policies and strategies of the portfolios managed, the national or cross-border nature of the business activities and the additional licences to provide MiFID services should be relevant. Therefore, we request to clarify that in assessing what is proportionate, the focus should be on the combination of all the mentioned criteria (size, internal organisation and the nature, scope and complexity of the activities).
As mentioned in our introduction, we strongly disagree with the proposed scope that the requirements on severance payments shall apply to all staff members. According to Article 32(1)(f) IFD, conditions on payments relating to the early termination of an employment contract such as severance payments only apply to categories of staff referred to in Article 30(1) IFD (identified staff).
In general, the provisions on performance criteria are sufficiently clear.
We request to replace the term ‘asset management’ in paragraph 196 with the term ‘portfolio management’. Asset management is a term used by the European Directives (AIFMD and UCITS Directive) dealing with collective investment undertakings. Portfolio management as a MiFID service should be used under the IFD framework.
At this point in time, we are not yet in a position to assess whether the provisions on pay-out in instruments are appropriate and practicable, in particular in cases where the investment firm provides portfolio management. We reserve the right to provide further explanations in this regard at a later date.
Regarding the use of alternative arrangements (paragraph 261 of the draft guidelines), we understand the proposed provisions addressed to competent authorities as a non-binding and non-exhaustive list of considerations. In any case, the new RTS on classes of instruments that adequately reflect possible alternative arrangements states the criteria which should be considered.