On June 4, the British Bankers’ Association (BBA) published its response to a consultation on remuneration guidelines previously published by the European Banking Authority (EBA) on March 4.
The draft guidelines published by the EBA complement the EBA’s opinion and report on the application of the Capital Requirements Directive IV (CRD IV) remuneration principles for EU banks and investment firms (i.e., most EU-regulated financial institutions). The draft guidelines provide additional detail from the EBA in support of a cap on the payment of bonuses by such firms. One potentially significant aspect of the draft guidelines relates to the “proportionality principle,” which allows EU regulators to follow a purposive interpretation of CRD IV rules and allows smaller firms not to have to comply with bonus deferral requirements and rules relating to the payment of bonuses in securities (pay-out process rules). While the draft guidelines consider implementing specific exemptions for staff that receive only a low amount of variable remuneration (i.e., bonuses), there is a proposal that the proportionality principle could effectively be removed so as to apply the remuneration rules equally to all EU-regulated banks and investment firms, regardless of their size.
The BBA’s response notes that the BBA is generally supportive of the EBA’s revisions to the guidelines––as this will help to ensure a consistent approach to the implementation of the CRD IV requirements across the European Union. However, the BBA response emphasizes significant concerns over the proposal to remove the proportionality principle––since this will have a significant and disproportionate impact on smaller firms.
The EBA consultation closed on June 4 and the EBA is now considering all the responses received; new remuneration guidelines will be published in the coming months and it is anticipated that EU regulators will implement the guidelines by the end of 2015 so that EU-regulated banks and investment firms will then apply the new remuneration rules to the 2016 performance year and thereafter. (Any EU regulator that elects not to apply the guidelines from the EBA must formally explain to the EBA and other EU authorities why they are not applying the guidelines in their jurisdiction. In the event that the EBA does decide to remove the proportionality requirement and the guidelines ultimately recommend that all firms should comply with the pay-out process rules, it is likely that the Financial Conduct Authority (FCA) will elect not to apply the guidelines in the United Kingdom since, to date, the FCA has taken great care to ensure that CRD IV remuneration rules are proportionate to the scale, nature and complexity of investment firms’ business in the United Kingdom).
The EBA consultation is available here.
The BBA response is available online here.