We think the definition of staff should be further clarified.
‘Identified staff’ is defined as ‘those staff whose professional activities have a material impact on the institutions risk profile’. It is unclear what is meant by ‘a material impact on the institutions risk profile’. We ask the EBA to clarify what such impact would entail, preferably with quantitative indications.
‘Normal’ staff is defined by the EBA as ‘all employees of an institution and its subsidiaries, including subsidiaries not subject to the CRD, all members of the management bodies within that scope and any other person acting on behalf of the institution and its subsidiaries’.
We are strongly concerned by this definition which seems to cover all staff irrespectively of functions and profile. Non-financial functions or where there is no link to the core business of a relevant credit and financial institution should be excluded from this definition. Additionally, we think remuneration policies of business partners that act on behalf of an institution should also be left out of the scope. We are worried by the potential operational consequences of such a definition.
The EBA guidelines fittingly impose more and stricter obligations on significant institutions than on institutions that are not significant. However, it is unclear whether subsidiaries of such institutions that would not classify as significant should also be treated as significant institutions.
Section 6.4 of the draft guidelines provides that significant institutions at individual, parent company and group level must establish a remuneration committee. Eurofinas and Leaseurope strongly believe that subsidiaries should not (automatically) be treated as their mother company. Subsidiaries typically have different business models, which necessarily respond to different risk strategies and remuneration policies. This would be consistent with the objectives of the CRD provisions on sound remuneration to treat subsidiaries of significant institutions only as a significant when justified by the institutions’ size, internal organisation and the nature, scope and complexity of their activities.
We ask the EBA to specify in its definition of ‘significant institution’ that subsidiaries of significant institutions are, in principle, not regarded as ‘significant’, unless the size or nature of the subsidiary’s activities suggests otherwise. Alternatively, we ask the EBA to include such a specification in a definition of ‘non-significant institutions’.
It is clear from Article 92(2) and 94 CRD that remuneration requirements are not meant to be applied in the same way to all institutions. Recital 66 CRD also provides that institutions may dis-apply certain remuneration requirements insofar as these are disproportionate.
We think that there are no substantial changes between the CRD III and the CRD IV provisions on proportionality. We therefore do not believe there is a need to deviate from the existing interpretation.
We think that, taken altogether, these provisions allow for the neutralisation of remuneration requirements. This is in line with the European Securities and Markets Authority’s (ESMA) and several national supervisors’ interpretation of the CRD III and/or CRD IV.
We understand that the European Commission recently provided an opinion on article 92(2) CRD according to which all remuneration requirements have to be applied to each institution . We disagree with this reading of the text. We note that the opinion was provided by the Directorate General for Justice and Consumers. We hope that the Directorate General for Financial Stability, Financial Services and Capital Markets Union will also be given an opportunity to contribute to this discussion.
We would also like to point out that some national supervisors already opted for the neutralisation of certain requirements. For example, in Germany, the provisions in points (l), (m) and (n) of article 94(1) CRD, namely the deferral of variable remuneration, its pay-out in instruments and malus are not applied to small and non-complex institutions under the threshold of 15 billion EUR total balance sheet. This is also the case in France where institutions or groups under the threshold of 10 billion EUR total balance sheet benefit under strict conditions from adjustments from the CRD4 remuneration requirements,
Against this background, Eurofinas and Leaseurope believe that the requirements for variable remuneration regarding material risk-takers should be neutralised for small institutions, as well as for institutions with only small amounts of variable remuneration. We believe that the general framework ensures that the remuneration is in line with the risk profile, values and the strategy of the company. Further requirements would prove disproportionate and excessively burdensome for consumer credit, asset finance and leasing providers especially given the low risk nature of their activities.
Remuneration policies cannot exclusively be addressed from the perspective of corporate governance, and risk-taking. It should also be recognised as a key component of firms’ recruitment packages and attractiveness for prospective staff. It is important that, as a result of these new standards, smaller entities are not placed at a disadvantage in the labour market thereby affecting their ability to compete with larger operators.