Shearman & Sterling LLP | FinReg | Application of EU Requirements for Remuneration Policies for Small and Non-Complex Firms Confirmed
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  • Application of EU Requirements for Remuneration Policies for Small and Non-Complex Firms Confirmed
    05/14/2015

    The European Banking Authority published letters between itself and the European Commission on the application of the proportionality principle to the remuneration requirements under the EU Capital Requirements Directive and Capital Requirements Regulation. The proportionality principle states that firms should implement the remuneration provisions in a manner and to the extent that is appropriate to the firm’s size, internal organization and the nature, scope and complexity of its activities. The EBA requested the Commission's views on the approach that the EBA should adopt to interpreting the proportionality principle in its guidelines on sound remuneration policies. The EBA noted that on a legal interpretation of CRD IV the remuneration principles must be applied proportionately, but that there could be no waiver for small or non-complex firms. However, a waiver might be justified on policy grounds for small and non-complex firms because variable remuneration paid is low and the incentives for employees to take risks is low but implementing costs would be significant. The European Commission confirmed that the EBA should follow its legal interpretation as to do otherwise would be to take a policy decision, which is outside of its powers. The EBA is consulting on draft guidelines on sound remuneration policies, adopting the Commission's approach. 

    View the EBA letter.

    View the Commission’s response.
    TOPIC: Compensation

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