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Japanese Bankers Association

Definitions provided are clearly defined, and hence further definitions are not required. However, while the December FX rate for the prior year is required to be used, we would request that this is amended to the FX rate for the month for the financial institution's relevant year end (e.g. March for a 31st March year-end).
Guidelines relating to remuneration policies for all staff, including those deemed as Material Risk Takers (“MRT”), are sufficiently clear. However, the following is requested:
Paragraph 15 mentions conflicts of interest regarding compliance with insider trading rules. As Regulation on Market Abuse, which will be implemented, does not refer specifically to issues with regard to remuneration, in finalising the guidelines, it is requested to illustrate some concrete examples on how remuneration practices could lead to market abuse.
Guidelines regarding shareholders' involvement in setting higher ratios for variable remuneration are generally clear.
While, for subsidiaries, an approval is generally required to be obtained from the direct shareholder (for example, a (intermediate) holding company), the proposed guideline requires an approval from shareholders of listed parent company. As a result, this requirement would place an onerous burden on the listed parent company and its subsidiary companies to obtain the consent from shareholders of the listed parent company. It is therefore requested to amend to require obtaining an approval only from the direct shareholder (a (intermediate) holding company).
Paragraph 68 sets forth that “branches of credit institutions having their head office in a third country are subject to the same requirements as applicable to institutions within Member States.” It is requested to specifically indicate which rules and guidance apply to third country branches.
Our understanding is that use of neutralization," or de minimus threshold, for deferral, pay-out in instruments and clawback will no longer be permitted.
However, this change in the approach (i.e. not allowing the use of “neutralization”) for deferral and clawback would have a significant negative impact on expatriates from Japan who are deemed to be the MRTs. It is therefore requested to permit “neutralisations” through exemptions applied in the EU member states for the following reasons.
Since exemptions exist, currently, there are no expatriates from Japan who had been subject to the rules. Since however some expatriates may be deemed as the MRTs, they might be subject to bonus pay out in stock or deferred payments. Additionally, if the use of "neutralisation" is not permitted, the number of identified staff would significantly increase, giving rise to concerns of, for example, an increase in fixed cost of financial institutions since they would be forced to take actions such as an increase in the ratio of fixed pay to total remuneration in order to address bonus caps and other factors.
Moreover, rules on the pay out in stock, deferral arrangements and other elements differ from those rules established in Non-EU member states, which would cause an unlevel playing field between those working within the EU and those outside of the EU. For example, since the de minimus threshold is currently applied in the UK (the individual's total remuneration of no more than £500,000, and the individual's variable remuneration of 33% or less against their total remuneration), even those deemed as an MRT might not be deemed to be identified staff. Other many European countries have similar exemptions. Additionally, as the term of expatriates is in most cases short, burden for managing these expatriates would increase. Further, the implementation of the proposed guideline would discourage senior individuals in control functions to take on roles within financial services compared to other industries, thereby reducing the size of talent pool available for these positions.
Remuneration payments to Japanese expatriates (including those deemed as the MRTs) are made in accordance with the remuneration policy established both in Japan and the UK. However, under the remuneration structure and culture in Japan, unlike those in Europe and the U.S., bonuses are rarely heavily linked to performance. (See <Remuneration Structure and Culture in Japan> below for details.) As such, an exemption, if permitted, is unlikely to promote excessive risk taking activities by Japanese banks, given their current business models.
Finally, we would like to emphasize that not being able to apply the de minimus threshold would result in the "one size fits all" approach to treatment of identified staff, thereby disregarding the impact the different roles have on the risk profile of the firm.

< Remuneration Structure and Culture in Japan>
In general, the remuneration policy for Japanese employees is structured by the Human Resources Division (HRD) in the bank's Head Office, which assumes a similar role and function as a remuneration committee. The HRD in Head Office is independent from business promotion functions.
The remuneration policy in Japan is based on seniority, capability for work and Job Grade, with adjustments made for Group, Divisional and individual performance. Salary levels are determined by the amount stipulated by the employee's Job Position and Job Grade (fixed remuneration).
Additionally, their bonus structure differs from a "pure" performance linked bonus but rather is composed of the following two elements: the first is based on their Rank/Level/Job size of each individual and does not vary substantially as it is built through their career in the bank. This element therefore does not incur a significant difference in the amount bonus across employees. The second part is the performance linked portion. This in general varies by only approximately 5%.
As such, the variable amount from performance linked bonus is small and performance linked bonus forms a small proportion of the overall bonus (for example, 1.5% = 30% x 5%). Hence, there is a significant difference between applying deferral, pay-out in instruments and clawback on a multi-million pound bonus versus the same on ten thousands of pond bonus.

<Impact on small-sized financial institutions>
Removing de minimus threshold would require applying the identified staff remuneration structure rules to remuneration of all delegated MRTs and junior MRTs (such as 40-60% deferral, 50% share linked, retention period, claw-back).
While these changes have no material implication on cost implication, it penalises smaller firms where relatively junior and low paid staff are subjected to the MRT criteria. If de minimus threshold were no longer allowed, there is a concern that the ability of small-sized financial institutions, including subsidiaries, to attract and retain this junior level of identified staff would be harmed."
Expatriates from the Head Office (HO) may be captured in accordance with the new guidelines.
The requirement in paragraph 107 sets forth that third country branches should inform their headquarters of the results of the identification process. It is requested to indicate regulators' expectations of this notification process.
We also request to clarify whether bank branches should obtain an approval from the HO.
The guidelines are sufficiently clear.
The guidelines are appropriate and sufficiently clear.
The guidelines are appropriate and sufficiently clear.

Whilst we understand the intention to restrict the use of allowances such that they constitute fixed pay, these provisions are likely to have the effect of increasing base salaries. Having increased base salaries would increase the fixed costs of the financial institutions. From business management perspective, we believe it would be better to have allowances where there is the ability to be able to withdraw or reduce the allowances.
The guidelines are sufficiently clear.
The guidelines are sufficiently clear.
While the provisions regarding personal hedging with respect to downward adjustment in variable remuneration are clear, further guidance is required regarding currency hedging.
The rules on some financial institutions’ identified staff deferral plan state that the currency for the purpose of the deferral plan shall be in Yen. As such, the deferred Share Price Linked (SPL) amount is treated as follows: Sterling amount is converted to Yen, linked to the banking group's share price and converted back to Sterling for payment. Deferred variable remuneration for identified staff is therefore subject to currency fluctuation and identified staff may want to transfer FX risk through hedging. Consequently, further guidance is sought on the use of currency hedging within the scope of Capital Requirements Directive (“CRD”).
Guidelines regarding circumvention are sufficiently clear.
The guidelines are sufficiently clear.
The guidelines are not clear.

The examples given in paragraph 206 are for financial institutions that fall within the scope of CRD. It is requested to provide guidance on how remuneration for control staff should be set in third country branches.
The provisions are not clear.

When setting rules on remuneration, an appropriate balance should be sought between limiting excessive remuneration and retaining high quality staff. We see little benefit in increasing minimum deferral requirements for senior managers from the current 3 years to 5 years, particularly within support and control functions in the context of limiting excessive remuneration. On the other hand, the increase in deferral could decrease the attractiveness of senior positions in the financial services industry compared to positions with similar levels of responsibility in other sectors and jurisdictions which are not subject to such rules. Additionally, 5 years may not necessarily align to all banks’ practice.
Therefore, it is recommended that the 5 years could be utilised as a minimum unless a firm can demonstrate to the relevant regulator that their risk time horizon is less than 5 years, in which case a minimum of 3 years may be applied.
The provisions are not clear.

Paragraph 248 sets forth the award of variable remuneration in shares. Further clarity is required for third country institutions which are in the legal form of a stock corporation and which are not listed in European Union stock exchange markets but other countries.
The guidelines are sufficiently clear.
The guidelines are sufficiently clear.
The guidelines are sufficiently clear.
The guidelines are sufficiently clear.
We agree with the impact assessment and its conclusion.
Masaaki Misawa