08 August 2013

EBF response to EBA consultation on draft RTS for the definition of material risk-takers for remuneration purposes

EBF responded to the consultation on EBA's draft RTS setting criteria to identify categories of staff whose professional activities have a material impact on the institution's risk profile within the framework of CRD IV.

In order to improve the process of the identification of material risk-takers and to reach a higher level of harmonisation across the banking industry, the EBF understands the proposed approach, which is based on a combination of internal criteria developed by institutions, and other regulatory qualitative and quantitative criteria to ensure consistency across institutions.

At the same time, the EBF would like to stress the role of national Financial Supervisory Authorities (FSAs), which are better placed to provide more detailed advice, guidance and support to the financial institutions in their respective markets, and ensure that relevant staff is identified. This approach can then be supported by European benchmarks (as currently conducted by EBA), providing FSAs with guidance on how they are positioned within a European context.

Furthermore, in order to avoid an un-level playing field, the draft RTS must be aligned with regulations targeting other parts of the financial industry, such as the Alternative Investment Fund Managers Directive (AIFMD) and (draft) UCITS V.

As for the draft RTS, the EBF would like to take this opportunity to draw your attention in particular to level playing field concerns and to issues related to applying such criteria within a Group context. The underlying concern is that key principles set out in the CRD IV text and described in Article 2 (3) of the draft RTS, such as proportionality (i.e. consideration of size, internal organization, business model and the risk profile of institution), which is also important with regard to individual institutions, and the notion of effective material impact of the staff members, are ignored under the proposed drafting.

Main points

• Key CRD IV principles seem to have been ignored;
• Under the proposed criteria, a large number of staff will be captured ex ante, many of whom will not be material risk takers; therefore, better calibration of the criteria is needed;
• Remuneration criteria follow a “one-size-fits-all” approach, failing to take into consideration the size, structure and activities of the institution, as well as the different locations and markets where it operates;
• The remuneration (quantitative) criteria should serve as backstop, with the purpose to verify whether all material risk takers have indeed been identified through the principal (qualitative) criteria;
• The influence of Group level supervision on policies, procedures and business strategy needs to be better assessed;
• It would be more workable and less burdensome for institutions to exempt categories of staff (i.e. by activity and / or function), rather than on an individual case-by-case basis;
• The RTS, if adopted as currently drafted, would lead to an increase of the fixed remuneration and subsequent decrease of the variable, a structure that moves away from risk-based remuneration policies and tools.

Full response

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