Austrian Economic Chamber, Division Bank and Insurance

Beside the fact that the proposed changes in the new draft of the EBA-RTS would lead to an essential increase of the number of MRTs with lower levels of management, the new provisions would mean considerably higher administrative efforts (higher identification efforts, higher tracking and payroll efforts due to higher fluctuation on lower levels of hierarchy, more checks in the bonus administration process, more complicated group steering) for credit institutions, especially for small and non-complex institutions.
In the light of EBA's recently published Peer Review Report (EBA/Rep /2020/02), in which the Review Panel notes that they have not detected any widespread deficiencies nor major issues regarding the application of the RTS, the question arises why essential changes or further tightening of regulatory requirements for the identifications of MRTs are necessary. Furthermore we would like to question how the legislator's wish, to apply the principle of proportionality, corresponds with the current draft of EBA.
Generally yes. However, we would like to highlight that the readability of the relevant regulations for conducting the selection of risk takers is poorer compared to the current RTS (No 604/2014). The current RTS contain all relevant rules primarily as a stand-alone source. The new RTS, however, can only be read together with other sources (e.g. Directive 2013/36/EU) to draw a meaningful picture.
According to Recital 6 of the EBA draft members of the management body have the ultimate responsibility for the institution, its strategy and activities and therefore are always able to exercise a material impact on the institution’s risk profile. In principle we agree to this basic assumption of the EBA. However, with regard to small and non-complex banks as defined in Article 4(1)(145) CRR II it is generally also true that in these institutions ‘only’ the two members of the management body have managerial responsibility in the sense of Article 2 and hold control functions according to Article 3 (apart from the internal audit) as in these banks multi-stage hierarchy levels and material business units (Article 4) generally do not exist.
Hence, in small and non-complex banks as defined in Article 4(1)(145) CRR II in general ‘only’ members of the management body are able to exercise a material impact on the institution’s risk profile.
Against this background Recital 6 of the EBA draft should be amended as follows (underlined and bold):
“(6) Members of the management body have the ultimate responsibility for the institution, its strategy and activities and therefore are always able to exercise a material impact on the institution’s risk profile. This applies to the members of the management body in its management function who take decisions as well as to the members of the supervisory function who oversee the decision making process and challenge decisions made. Members of the management body as defined by Article 3(7) and (8) of Directive 2013/36/EU are identified under the criteria within Article 92(3)(a) of Directive 2013/36/EU. Basically, in small and non-complex institutions as defined in Article 4(1)(145) of Regulation (EU) No 575/2013 only members of the management body exercise a material impact on the institution’s risk profile.”
Such a restricting clarification is also required in the legal wording of Article 2 (managerial responsibility) and Article 3 (control function) and Article 4 (material business units).
This approach is also absolutely in line with the Recital 5 (principle of proportionality) according to which the institution's internal organisation and the nature, scope and complexity of its activities should be taken into account in the assessment for identifying staff for the purpose of Article 94 CRD V.
In terms of larger banks, we appreciate that the RTS contain a definition of “managerial responsibility”, but the definition is too wide and unclear and goes beyond the current RTS, although it is intended by EBA to retain the qualitative criteria which are set out in the current version of the RTS to a large extent.
Managerial Responsibility (Art 2 of the draft EBA-RTS):
point (a) states that “the staff member heads a business unit or a control function […]”. This wording goes far beyond the legal basis of CRD V, since Art 92 (3) CRD V only refers to material business unit. To avoid gold plating we therefore ask to add “material” to the wording: “the staff member heads a material business unit or a control function […]”.

point (b): the definition “the staff member heads a subordinated unit or subordinated control function and reports to a staff member referred to in point (a)” would lead to the inclusion of an essential number of B-3 staff members (4th management level). These staff members (4th management level) do in fact not have a material impact on the institutions risk profile. It should not be the intention of EBA to identify these staff members as MRTs and to create a huge workload for institutions, therefore we ask to delete para (b) of Art 2.
Material Business Unit (Art 4):
point (a): the allocation of an internal capital of at least 2% of the internal capital of the institution is difficult to allocate for small institutions. Therefore, for reasons of proportionality, we propose to make a distinction for small and non-complex institutions (total assets of EUR 5 billion) and to use for small and non-complex institutions the internal capital of the consolidating institution.

Material business unit and significant impact on the material business unit’s risk profile (Art 5):
For proportionality reasons we may ask to delete this provision for small and non-complex institutions due to bad cost/benefit-relation.
The qualitative criteria according to Article 6 are not fully clear. Partly because the definition of managerial responsibility is unclear (see also our comment above to Question 2, and further considerations below) but also regarding the individual functions:
Article 6 point (1):

• Point (c): What is meant by “compliance with taxation requirements”? Is this a reference to a compliance function? Or to Head of Tax Management? Theoretically this could also refer to a payroll function since compliance with the tax on wages is also dealt with in that area. We would welcome a clearer wording.
• Point (h): Does security in this regard only refer to IT security?
• Point (i): Which functions are covered here? In our understanding it cannot be Outsourcing Managers who primarily deal with the administration of Service Level Agreements to govern outsourcing arrangements (SLAs).

In general, we have concerns about the appropriateness of the criteria established in Article 6 point (1) - as already mentioned above - in our comments concerning Question 2.
Our concern is mainly connected with the fact that all staff who has managerial responsibility for the areas defined in Art 6 point (1) would be deemed to have a material impact on the institution`s risk profile. No waiver regarding the application of the requirement is established.
We believe that the current requirement, as defined in Art 3 point (9) of the current RTS (No 604/2014) is more appropriate. The current criteria would define as Identified Staff only the highest hierarchical level of the unit, responsible for the relevant function.
The proposed text of Art 6 point (1) defines as Identified Staff the employees who have “managerial responsibility” over one of the listed functions. As already mentioned above, the staff who has managerial responsibility, as defined in Art 2 from the proposed regulation would include not only the employees on the highest hierarchical level in the respective department (i.e. B-1), but also employees who head a subordinate department (B-2 and B-3). As no waiver from those requirements is set forth, even if according to the findings of an analysis that such staff does not actually have a material impact on the institutions risk profile, the requirements for Identified Staff would still apply. In our opinion this would be unjustified as the heads of the subordinate units (i.e. B-2 and B-3) may not have independent rights to make significant decisions, thus would be obliged to bring the matter to an individual on a higher hierarchical level (i.e. B-1).
In order to take into account the possible cases in which the cited criteria would not be appropriate, we believe that establishing a waiver for the analysed situations would be appropriate.

Application date: the application date of the RTS has not to be set before the application date of the CRD V and should therefore be aligned.

Article 6 point (2):

Point (2) refers to all members in the respective committees and not “voting” members as in points (3)(b), (4)(b) and (6)(b). Was this differentiation taken deliberately (i.e. do point (2) and points (3), (4) and (6) intentionally have a different scope when it comes to committee members)?
yes
yes
This assessment depends largely on the interpretation of “managerial responsibility” and consequently on the functions to be selected as Identified Staff. We trust that our answers to Questions 2 and 3 will be taken into consideration accordingly.
Moreover, it has to be pointed out that the selection of Identified Staff is in many credit institutions linked to the selection of staff under the Fit & Proper Regime. Consequently, the proposed RTS, especially considering the definition as regards “managerial responsibility” (see our comments to Questions 2 and 3), would ultimately also increase the efforts related to the “fit & proper” regime.
In our view, for small and non-complex institutions, the one of the two proposed sets of criteria should be applied:

1. Due to their low bonuses and the non-complexity of their business identification of the MRTs for small and non-complex institutions (total assets of EUR 5 billion) should be as follows:
(a) all members of the management body
(b) all heads of the institutions control functions
(c) all staff member who's remuneration is equal to or greater than EUR 750 000

All MRTs in small and non-complex institutions would be identified through this criteria. Furthermore, this solution would lead to a harmonized understanding of the rules for all small and non-complex institutions.

or

2. Alternatively, the provisions of CRD V would be sufficient for small and non-complex institutions (total assets of EUR 5 billion) for the identification of their MRTs. Due to their low bonuses and their non-complexity of their business the identification of
(a) all members of the management body and senior management;
(b) all heads of the institutions control functions and material business unit;
(c) all staff member who's remuneration is equal to or greater than EUR 500 000 and equal to or greater than the average remuneration awarded to the members of the institution's management body and senior management referred to in point (a) and (i) the staff member performs the professional activity within a material business unit and (ii) the activity is of a kind that has a significant impact on the relevant business unit's risk profile.

Dr. Franz Rudorfer
A