CRDIV remuneration review by the European Commission


CRDIV contains many remuneration provisions affecting banking remuneration and its governance, although much of the focus of sector ire has been on the requirement to defer bonuses, pay them (at least partly) in shares, subject them to malus and clawback and, finally, subject them to a cap by reference to a multiple of fixed pay. There is provision for a proportionality regime scaling back some requirements in appropriate cases, though whether this means complete disapplication is a matter of dispute.

Not surprisingly, the Commission reports are very conservative, and no change will in itself result from them. Those that were optimistically hoping that data would emerge showing that the costs of compliance with the pay regime vastly outweigh the benefits or that the underlying problems that the remuneration provisions were meant to address have fallen away will be disappointed – the Commission still thinks that the existing CRDIV tools have relevance. 

In some cases the reports say that it is too soon to form firm opinions on the impact of particular rules, for example, because of insufficient data. This is due to the extension of the Material Risk Taker definition and the "correct" use of role-based allowances to boost fixed pay only taking effect in 2015. However, the reports generally support the status quo. Where they do support change, this is still subject to further evidence being gathered. For example, last year the European Banking Authority suggested regularising the exemption under proportionality of smaller firms from the need to apply certain pay-out rules on deferral, use of shares and malus/clawback - though not bonus capping, which the Commission and the European Banking Authority think (in contrast to the PRA and FCA) all affected firms should apply to their key staff - though it thinks this needs a change in legislation. The Commission provisionally agrees, but before any legislative action is taken, requires more evidence be sought here on the detail. It also wants more evidence on whether banks should be able to pay out using the cash equivalent of shares as opposed to shares themselves (which it also provisionally supports). The Commission is also considering, under other built-in review triggers in CRDIV, whether investment firms should be subject to the CRDIV remuneration regime at all.

The Commission and European Banking Authority have therefore now both published their direction of travel on exemption from the pay-out rules for smaller firms. Accordingly, even with the Commission calling for more evidence before legislative changes can be made, firms who have been benefiting from exemption from certain key pay-out rules can comfortably plan on continuing to take advantage of the exemption beyond 1 January 2017 (at least until new legislation comes in which may change the scope of the exemptions or set new limits beyond which the full rules must be applied).

The PRA is due to put out papers on the implementation of the new Banking Guidelines (as well as a response on how clawback and malus should be applied to bonus buy-outs by new employers) shortly, and so maybe the PRA will further address there how this can continue in the UK.

Click here for a link to the relevant Commission papers.