ABI - Italian Banking Association

It would be appropriate to define a single document that summarizes the identification criteria of material risk takers contained in the Directive 2013/36/EU and those in the EBA consultation document, to have a single regulatory reference.
It is necessary to clarify the timing of application of the new criteria. In order to avoid management complications, it is fundamental that the new RTS have the same timing of application of the Directive.
The application under point (b) of paragraph 1 of Article 7 on individual basis has to be conducted for subsidiaries which are institutions as per the CRR definition (i.e. credit institutions or investment firms located in the EU, and thus subject to the CRD/CRR on an individual basis). This interpretation would be aligned with the explanation contained in the cost-benefit analysis accompanied to the RTS, which specifically states that “the draft RTS only affects institutions that are subject to Directive 2013/36/EU” (i.e. only institutions within the EU are susceptible of being subject to obligations on an individual basis).
Additionally, but also regarding the identification process on a consolidated level, it would be useful that the RTS clarify that the application of the criteria shall be based on the group’s (consolidated) risk profile, in the same manner that it does for the application of the criteria on an individual basis (and, of course, without prejudice of the exceptional rules for the application of article 7(1)(b), which have already been commented).
ABI deems that in Article 2 - Managerial responsibility, the under point (b) ʻthe staff member heads a subordinated unit or subordinated control function and reports to a staff member referred to in point (a)ʼ implies the inclusion in the perimeter of the ʼidentified staffʻ of many subjects who do not take significant risks. The provision should therefore be completed with the explanation that those members must have an objective managerial responsibility and must have authority to take decisions with significant impact on the institution risk profile or on a material business unit’s risk profile.
The under point (b) ʼthe staff member heads a subordinated unit or subordinated control function and reports to a staff member referred to in point (a)ʻ of Article 2 should be revised to include only categories of staff whose professional activities have a material impact on the institution’s risk profile in order to ensure a consistent approach to the identification of such staff.
In small and non-complex institutions the provision of Article 2, point b) could identificate members who do not assume relevant risks for the institution. It means that the provision has to be modified in a proportional manner.
We ask to clarify in Article 2 the meaning of “subordinated control function”.
In Article 3 - Control function, it is necessary to use the definition of control functions indicated in the Internal Governance Regulation, it means compliance, risk and audit functions.
In Article 4, point b) a material business unit is a critical function or a core business line as defined in points (35) and (36) of paragraph 1 and paragraph 2 of Article 2 of Directive 2014/59/EU, but it is important to underline that critical functions are often not comparable to a business unit but are business processes (e.g. deposits, payments).
The existing RTS provide for all employees in an material business unit (MBU) to be initially identified as risk takers, but may be opted out, provided that it can be proven that the activity of the employee has no significant impact on the risk profile of an MBU. The new rules instead stipulate, in Article 5” institutions shall set out within their remuneration policy qualitative or quantitative metrics to determine whether the professional activities of staff or categories of staff have a significant impact on the material business unit’s risk profile. This increases the identification and documentation effort. In any case more details on regulators expectations on the criteria would be appreciated (e.g. in practical terms how should institutions take into account “risk strategy and risk appetite”).
ABI asks to clarify that the identification of the material risk takers on the basis of the qualitative criteria, with specific reference to the functions covered, takes into account the actual and concrete company authority to take decisions independently on the matters covered. Very often, esplecially in small companies the final decision of specific issues is in charge of the management body or the senior management.
As reported in Guidelines EBA on sound remuneration policy at paragraph 105 “When applying the qualitative criteria in Article 3 of Commission Delegated Regulation (EU) No 604/2014 on the solo level, institutions should identify the staff responsible for the function named in the qualitative criteria; the main criterion for the identification is not the name of the function but the authority and responsibility conferred on the function.”
ABI asks to modify in Article 6 – Qualitative criteria “(1) the staff member has managerial responsibilities” with “staff member heads a function responsable for” as in Qualitative criteria 9) of the Commission Delegated Regulation (EU) No 604/2014.
ABI asks to replace in Article 6 – Qualitative criteria, point (1):
b) “the adequacy and appropriateness of accounting procedures” with the previous normative reference “Finance, taxation and budgeting”.
f) dealing with human resources with the previous normative reference “head of human resources”.
g) the development or implementation of the remuneration policy with the reference “head of remuneration policy”.
In Article 6 – Qualitative criteria, point (1) ABI asks to clarify the meaning of
h) providing information technology or security. Does the provision refer to information security?
i) managing outsourcing arrangements of critical or important functions.
In Article 6, point (2), “managerial responsibilities” should be replaced by “has authority to take decisions for a risk category” and “is a member of a committee” should be replaced by “is a voting member of a committee” for consistency with the criteria 3 and 4 of Article 6”.
ABI shares the choice of limiting the identification of material risk takers on the basis of criteria 3), Article 6, considering the staff member who has the authority to take, approve or veto a decision on a credit risk exposure instead of the staff member who is responsible for initiang credit proposals.
Moreover ABI agrees with the proposal criteria foreseen under point (b) of paragraphs 3 and 4 of Article 6, regarding the staff members who is a voting member of a committee which has the authority to take decisions set out in points. Regarding these provisions and about criterion 6) point. b), Article 6, ABI asks to evaluate with a different weight the collegial decision in the committee with such authority and the vote of a single member.
About Article 6, point 4) we would like to point out that the sub-allocation of the VaR limits of the Trading Book is not always available and then ABI propose to integrate the provision with alternative measures (e.g. the limits applied to the Fair Value Through Profit and Loss accounting category).
Regarding point 5) The existence of exceptional circumstances shall be demonstrated by the institution and assessed by the competent authority. In this regard, the concept of “exceptional circumstances” entails a situation that is unusual and very infrequent or far beyond what is usual. The exceptional circumstances shall be related to the staff member or category of staff concerned is necessary to consider that the consolidated application of the CRD5 implies that the asset management, advisory and investment companies are also required to comply with the regulations and it may happen that staff with high remuneration is included in the perimeter of ʻidentified staffʼ but does not work in a material business unit and the professional activities of this staff or categories of staff have not a significant impact on the material business unit’s risk profile. It means that the staff is not material risk taker according to the new RTS. Then it could be useful to include between “exceptional circumstances” the circumstance for which the staff or categories of staff operate in an asset management, an advisory or in an investment company.
In the Italian legislation tied agents have the same framework of employees but tied agents have a different structure of remuneration and high remuneration is not necessarily linked to the material risk assumption. It means it would be appropriate to include between “exceptional circumstances” the circumstance for which the staff is a tied agent.
Concerning the exemption, the prior approval of the competent authority is requested in case the remuneration awarded exceeds EUR 750,000 or 0.3% highest paid, but is not requested for the first criteria in the case the amount of the maximum in application of the (1) is below EUR 750,000 and below the 0.3% of staff with the highest remuneration. In this respect, it is not clear whether the notification process is still applicable. Indeed, the exemption process including the notification process currently applicable according to the DECISION (EU) 2015/2218 OF THE EUROPEAN CENTRAL BANK of 20 November 2015 for exemption between EUR 500,000 and EUR 750,000 is actually very heavy, that is why a very limited number of institutions request any exemption (prior approval and notification). ABI considers that due to the update of the remuneration criteria in these Draft RTS, for those who are just captured by remuneration level and who were previously eligible to the single notification process to be exempted (those between EUR 500,000 and EUR 750,000 or 0.3%) and who have not impact on the risk profile of the institution, this notification procedure should be deleted to prevent from any useless administrative burden for both institutions and competent authorities.
In point 1) it is clarified that “institutions should calculate the average total remuneration of all members of the management body and senior management taking into account the total remuneration of all members of the management body in its management function and supervisory function as well as all staff that falls under the definition of senior management.” It means that in the quantification are included components of management body in management function and supervisory function, thus also including non-executive members whose remuneration values are very low and fee based. With the extension proposed by the RTS, a substantial number of resources could be identified within the scope of ʻidentified staffʼ which could then be excluded because they are not operating in significant business units, but this would result in an increase in management costs.
Also in the Commission Delegated Regulation (EU) No 604/2014 at point (15) it is clarified that “being in the same remuneration bracket as senior management or risk takers may also be an indicator that the staff member’s professional activities have a material impact on the institution’s risk profile. For these purposes, the remuneration paid to staff in control functions, support functions and members of the management body in the supervisory function should not be taken into account.”. ABI therefore asks to confirm this approach avoiding to consider components of management body in supervisory function.
About the identification of the material risk takers on the basis of the qualitative criteria, with specific reference to the functions covered, it is necessary to take into account the actual and concrete company authority to take decisions independently on the matters covered as, especially in small companies, the final decision of specific issues is in charge of the management body or the senior management.
As reported in Guidelines EBA on sound remuneration policy at paragraph 105 “When applying the qualitative criteria in Article 3 of Commission Delegated Regulation (EU) No 604/2014 on the solo level, institutions should identify the staff responsible for the function named in the qualitative criteria; the main criterion for the identification is not the name of the function but the authority and responsibility conferred on the function.”
In small and non-complex institutions the provision of Article 2, point b) could identificate members who do not assume relevant risks for the institution. It means that the provision has to be modified in a proportional manner.
In the context of a banking Group, for small subsidiaries which benefit from an exemption according to the application of the 94.3 a) of CRDV, ABI alternative proposal would be to limit the identification criteria to:
-the members of the management body,
-the senior management, and
- possibly the heads of control functions if any at the subsidiary level (they are frequently already identified at the consolidated or sub-consolidated level),
but not to apply the other criteria such as detailed in the present draft RTS, that appear to be irrelevant for the application of the principles on a solo basis at the level of each small subsidiary on top of the application on a consolidated basis at Group level.
Cristiana Minguzzi
A