It finds that the remuneration rules are generally effective in curbing excessive risk-taking behaviour and short-termism. These were precisely the reasons why the rules were introduced in the aftermath of the financial crisis.
However, drawing in particular on work done by the European Banking Authority, two public consultations and an external study, the report concludes that, in certain cases, some of the rules may be too costly and burdensome to apply, compared to their prudential benefits. This is particularly the case when the rules on deferral and pay-out in instruments are applied in small and non-complex institutions or to staff with low levels of variable remuneration. This is also the case when listed institutions are required to use shares to remunerate their staff.
In light of these findings, the Commission will conduct an impact assessment, which will look into a possible clarification of these rules and their application to the smallest and least complex institutions. This would be part of the wider revision of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR), now under consideration.
"The EU rules on remuneration brought in after the financial crisis are working. They have proven useful tools to curb excessive risk-taking by staff and to ensure their focus on longer-term interests of credit institutions and investment firms, thereby contributing to financial stability" said Věra Jourova, Commissioner for Justice, Consumers and Gender Equality, who oversaw this report. "However our evaluation shows that there may be room to make remuneration rules more proportionate and less burdensome from an administrative perspective, in particular for smaller and less complex credit institutions and investment firms. But we will make sure that any adjustments to the rules do not affect financial stability, which remains the overarching objective".
As regards the rule setting a maximum ratio between variable and fixed remuneration, it was not possible to draw final conclusions on its impact in today's report. The rule was recently introduced and has yet to show its full effects. In addition, the application of the remuneration rules to all investment firms may need to be revisited once the Commission finalises the review of the prudential regime applicable to investment firms.
The Capital Requirements Directive ("CRD") and the Capital Requirements Regulation ("CRR") regulate remuneration policies and practices in credit institutions and investment firms. In the aftermath of the financial crisis, it was broadly recognised, at international level, that poorly designed remuneration policies can lead to excessive risk-taking by staff and to a focus on short-term gains. In order to protect financial stability, CRD III followed by CRD IV and CRR introduced remuneration rules for key staff capable of influencing the risk profile of their institutions. These rules aimed to limit excessive risk-taking and align staff’s incentives with the long-term objectives of firms.
The Report was drafted to comply with the obligation under Article 161(2) of CRD for the Commission to report to the European Parliament and the Council on the efficiency, implementation and enforcement of the remuneration rules, with a particular focus on the impact of the maximum ratio on financial stability, competitiveness and staff working for non-EEA subsidiaries.
In drafting the Report, the Commission sought stakeholders’ input through a public consultation, a stakeholder event, bilateral meetings with industry representatives and a specific study. The European Banking Authority was closely involved throughout the process. In addition, the Commission's Call for Evidence on the EU regulatory framework for financial services yielded a number of additional responses related to the proportionality of the CRD remuneration rules.
The Commission will carry out an impact assessment, on the basis of which it will consider presenting a proposal for certain adjustments of the remuneration rules. This work will be part of the broader revision of the CRD and CRR planned for the end of this year.
The Commission will also examine the implications of the findings reflected in today's report for remuneration rules set out in other financial sector legislation, in particular the Undertakings for the collective investment in transferable securities Directive (UCITS V) and the Alternative Investment Fund Managers Directive (AIFMD).
For more information
Report on the remuneration rules for credit institutions and investment firms
Homepage of Věra Jourová, Commissioner for Justice, Consumers and Gender Equality