European Banking Authority Launches Consultation on Draft Technical Standards Identifying Material Risk Impact Staff Subject to Compensation Requirements

The European Banking Authority has launched a consultation on its draft Regulatory Technical Standards setting out the criteria for identifying staff whose professional activities have a material impact on credit institutions’ risk profiles. The EBA is required to produce the RTS under the revised Capital Requirements Directive (CRD V), in support of the CRD requirement that remuneration policies for staff whose professional activities have a material impact on the credit institution’s risk profile are appropriate to the size, nature and complexity of the credit institution in question. The new criteria will assist credit institutions in judging which of their staff are caught by the conditions on remuneration. Once in force, the new RTS will repeal the existing RTS on the qualitative and quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, as set out under Commission Delegated Regulation (EU) No. 604/2014. Responses to the EBA’s consultation should be submitted by February 19, 2020.
 
The CRD conditions on remuneration policies are designed to combat the use of remuneration to incentivize excessive risk-taking, in line with the Financial Stability Board’s Principles for Sound Compensation Practices and Implementing Standards. CRD requires that, for those individuals who are likely to have a material impact on risk profiles, remuneration policies should be established that, amongst other things, promote sound and effective risk management and do not encourage risk-taking that exceeds the relevant institution’s tolerated risk. CRD V introduces a new list of staff whose professional activities will be deemed to have a material impact on the institution’s risk profile (including all members of the management body and staff members with managerial responsibility over the institution’s control functions or material business units). CRD V also requires the EBA to include in its RTS further guidance on the interpretation of this list and to set out other categories of relevant staff who may fall within this provision.
 
The EBA’s proposed RTS include definitions of “managerial responsibility”, “control function”, “material business unit” and “material business unit and significant impact on the material business unit’s risk profile”. The draft RTS go on to set out the qualitative and quantitative criteria for identifying other relevant staff. The qualitative criteria include that a staff member has managerial responsibility for legal affairs, compliance with tax requirements, the prevention of money laundering or dealing with human resources or has the power to approve or veto the introduction of new products. The quantitative criteria include that the staff member has been awarded total remuneration equal to or greater than €750,000 in the preceding financial year or is within the top 0.3% of staff awarded the highest remuneration in the preceding financial year within the institution. Staff that fall within the quantitative criteria may be exempt from the remuneration policy condition if their professional activities do not have a material impact on the institution’s risk profile.
 
The EBA seeks feedback on each aspect of its draft RTS and also asks respondents to consider whether there are specific provisions that it would be inappropriate to apply to small and non-complex institutions.
 
View the EBA's consultation paper.
 
View details of CRD V and CRR II.
 
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