The European Union (EU) has agreed on measures aimed at reducing risk taking in the banking system, including remuneration rules for all but the smallest financial firms. The rules feature in a proposed revision of the capital requirements directive (CRDV, updating CRDIV). Once approved by the European Parliament and Council of Ministers, most of the provisions are expected to take effect on 1 Jan 2021. Until then, CRDIV and current guidelines issued by the European Banking Authority (EBA) — the EU’s regulatory authority — remain in force.
The European Commission published a number of proposed amendments to CRDIV in November 2016 with the goal of promoting “the sound and effective risk management of institutions by aligning the long-term interests of both institutions and their staff qualifying as material risk takers.” The provisions agreed on:
─ Smaller and less complex banking institutions. These are defined as institutions with assets valued on average and on an individual basis equal to or less than €5 billion over the four-year period immediately preceding the current financial year. Member states may lower or increase the €5 billion threshold, but it cannot exceed €15 billion.
─ Individuals with variable remuneration below certain thresholds. The principle applies to staff whose annual variable remuneration doesn’t exceed €50,000 and one-third of the staff member’s annual total remuneration.