Under Article 90(2) of the CRD IV, the European Banking Authority (EBA) is mandated to “develop draft regulatory technical standards (RTS) with [...] respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on the institution’s risk profile as referred to in Article 88(2).”
Indeed, in the course of 2012, the EBA conducted a survey aiming at assessing how legislators and supervisors in the various member states had implemented the CEBS Guidelines in their legislative frameworks, focusing on possible differences between these implementations and the Guidelines and how the requirements of the Guidelines had been supervised in practice, what progress had been made by institutions and which areas needed further development.
Among a certain number of issues identified by the Survey, the EBA concluded that “the numbers of Identified Staff differed considerably between Member States, but there was a clear tendency of institutions to select very low numbers. This affected the core of the CRD III requirements and undermined the effectiveness of EU supervisory reforms on remuneration. […] Many supervisors expressed the need for clear criteria and a process to identify risk takers in a single entity and within groups. […] Further harmonisation of the identification process was essential for a level playing field”.
As a consequence, within the context of Article 90(2) of the CRD IV, the EBA has just released a “Consultation Paper on the draft regulatory technical standards on criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile”.
The identification process proposed is based on a combination of internal criteria developed by the institution itself and other regulatory qualitative and quantitative criteria. At this stage, it seems that the proposed RTS could give rise to a greater number of employees being captured by the provisions.
- Internal criteria: internally developed criteria based on the institution’s individual risk profile, ensuring that an institution is identifying staff comprehensively and in line with its business and risk strategy.
- Qualitative criteria: the qualitative criteria identify staff within the management body, senior management and other staff with key functions or managerial responsibilities over other risk takers within institutions. In addition, the draft RTS contains criteria based on the authority of staff to commit to credit risk exposures and market risk transactions above certain thresholds calculated as a percentage of the Common Equity Tier 1 capital.
- Quantitative criteria: The proposed quantitative criteria are different in nature: (i) one is based on total remuneration in absolute terms (staff earning more than EUR 500 000); (ii) one is defined in relative terms (0.3 % of staff with the highest remuneration); (iii) one is based on the remuneration bracket of senior management and other risk takers and, (iv) one is based on variable remuneration (variable remuneration exceeds 75 % of the fixed component of remuneration and EUR 75 000).
Comments and feedback from the banking industry to this Consultation Paper are expected by August 21, 2013. The EBA will then finalize the draft RTS by early 2014 and update the CEBS Guidelines on Remuneration Policies and Practices accordingly.