ECB opinion on compensation systems at institutions and insurance companies
14 May 2010
The ECB emphasises the importance of fully aligning requirements relating to compensation practices and policies with the international standards on compensation, and with the envisaged revision of Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions.
General observations
· This draft law on the prudential supervision requirements for the compensation systems at institutions and insurance companies (hereinafter the draft law) can be viewed as a logical step following (i) the compensation restrictions adopted for institutions benefiting from rescue measures by the Federal Government in the Law on financial market stabilisation and the Financial Market Stabilisation Fund Regulation4, and (ii) the measures reforming financial supervision instruments in the Law on strengthening the supervision of the financial market and insurance sector5, on which the ECB was consulted6. The draft law will put in place measures with a view to limiting incentives for risk-taking behaviour and ensure efficient and effective supervision on a long-term basis.
· The ECB welcomes the draft legislation by the Federal Government which, together with the implementing regulations to be issued subsequently, will implement the international standards on compensation intended to enhance the stability and robustness of the financial system. In this respect the ECB emphasises the importance of fully aligning requirements relating to compensation practices and policies with the international standards on compensation, and with the envisaged revision of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast)7, introducing provisions aimed at ending practices that lead to excessive risk-taking.
· The ECB understands that the draft law sets out the general terms of compensation, whereas the detailed rules are to be set out in the foreseen implementing regulations. These implementing regulations have not yet been subject to consultation of the ECB. The ECB encourages the consulting authority to consult it also on these implementing regulations in due time before their adoption.
· The ECB draws the consulting authority’s attention to the need, in addition to adopting measures such as the draft law, to strengthen coordination of policy measures in response to the crisis.
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