CRD IV/CRR remuneration requirements in the EU

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • CRD IV/CRR remuneration requirements in the EU
  • Background and introduction to EU CRD IV and EU CRR
  • EU CRD IV and EU CRR remuneration requirements
  • Material risk takers
  • Changes introduced by EU CRD V and EU CRR II
  • EU guidelines on EU CRD IV/CRR remuneration
  • Remuneration requirements for EU investment firms
  • FSB guidance and recommendations on remuneration
  • UK remuneration requirements for CRR firms

CRD IV/CRR remuneration requirements in the EU

This Practice Note discusses the EU remuneration provisions under the Capital Requirements Directive 2013/36/EU (EU CRD IV) and Regulation (EU) 575/2013 (EU CRR). The rules relate to remuneration paid by credit institutions and investment firms to their staff.

Background and introduction to EU CRD IV and EU CRR

Following the financial crisis, the Financial Stability Board (FSB) and a number of national regulators conducted reviews into the governance and structure of remuneration arrangements within the financial services sector. The main conclusions drawn from these reviews were that:

  1. firms (and regulators) had failed to appreciate the extent to which remuneration policies and practices could encourage excessive risk-taking

  2. the structure of remuneration specifically could encourage excessive risk taking by focusing on cash-based, short-term incentives

  3. bonus pool calculations did not sufficiently take account of firms’ capital and liquidity costs and the risks they faced

  4. performance management systems often focused too heavily on financial performance and didn’t take into account multi-year performance

The FSB formalised the conclusions of its review into a set of FSB Principles for Sound Compensation Practices published on 25 September 2009. National regulators then began to draw up plans for regulating remuneration; in the US a set of high-level guidance was published in late 2009 and in the UK, the Financial Conduct Authority (FCA)’s predecessor the Financial Services Authority (FSA) implemented

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