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Guide to EBA’s draft guidelines on remuneration

“There is a lot of detail on the treatment of allowances, but this is broadly in line with the EBA’s opinion published last year and, as the guidelines are in draft form and subject to 3 month consultation, banks will want to wait until we have the final guidelines and are clear on the approach of the UK regulators before making any changes. Alex Beidas, Senior Employment & Incentives lawyer at Linklaters.

“The biggest surprise is the indication that some smaller banks and investment firms which have, to date, been able to disapply the bonus cap for proportionality reasons may not be allowed to do so. At this stage this is all subject to further discussion between the EBA and the Commission and they are seeking feedback on this so the final position may change. In any event, we would not expect any such change to be applied before 2016 at the earliest.”Also, in case helpful, here is a summary of the new draft guidelines: The draft guidelines are a complete rewrite of the previous CEBS Guidelines issued in December 2010 and run to 119 pages covering a wide range of topics, including guidance on Identified Staff, the treatment of groups, proportionality, allowances, guaranteed bonuses, buy out bonuses, non-cash instruments, performance adjustment and clawback and disclosure. The draft guidelines are subject to a 3 month consultation to 4 June. Once finalised, Member States will be expected to implement the final guidelines by the end of 2015 so they take effect for the 2016 performance year onwards. Member States will have 2 months to confirm if they will comply or explain non-compliance. There will be a public hearing on the draft guidelines on 4 May.

Summary of key points

Allowances: there is a lot of detail on the treatment of allowances but this is broadly in line with the EBA’s opinion published last year and as the guidelines are in draft form and subject to 3 month consultation, at this stage it would seem to make sense to wait until we have the final guidelines and are clear on the approach of the UK regulators before making any changes.

Proportionality: the biggest surprise is the indication that the banks and investment firms which have to date been able to disapply the bonus cap for proportionality reasons (i.e. CRD 4 firms in Proportionality Level 3) may not be allowed to do so. At this stage this is all subject to further discussion between the EBA and the Commission and they are seeking feedback on this so the final position may change. In any event we would not expect any such change to be applied before 2016 at the earliest.

Guaranteed bonuses: there is clear guidance that guaranteed bonuses should not be counted towards the bonus cap but retention bonuses (to existing staff) should count towards it.

Termination payments: there is guidance on which elements of pay received on termination count to the bonus cap. If payments are clearly compensatory in nature they will not count.

Malus and clawback: the guidelines propose that malus and clawback be applied for at least as long as the deferral and retention periods (therefore they do not go as far as the UK rules on 7 year clawback).

Identified Staff within groups: the draft guidelines make it clear that the test is whether the individual has a material impact on the consolidated group’s risk profile on a consolidated basis.

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