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Summary of CEBS Feedback to Public Consultation on Guidelines on Remuneration Policies and Practices (CP42)

Overview of the Consultation

On 8 October 2010, the Committee of European Banking Supervisors (CEBS) published a consultation paper (CP42) on the Guidelines on Remuneration Policies and Practices. The consultation period ended on 8 November 2010, during which 39 responses were received, with 33 published on the CEBS website (others requested confidentiality). A public hearing was also held on 29 October 2010 to gather market participants' views.

CEBS provided a summary of the major points from the consultation and outlined its views on the received comments, as well as the changes made to the guidelines to address them. Where multiple respondents raised similar concerns, these were aggregated in a feedback table at the end of the document.

General Remarks

• Response Diversity: The consultation received responses from a wide range of market participants, including trade associations, banks, investment firms, consultancies, lawyers, and academia.
• Appreciation of Guidance: Most respondents appreciated CEBS' work in providing guidance for implementing CRD III remuneration requirements.
• Concerns on Super-Equivalence: Some respondents raised concerns about the super-equivalence of certain CRD III provisions to FSB principles, particularly regarding the distribution of cash and non-cash instruments over both the upfront payment and deferral period.
• CEBS Response: CEBS acknowledged the concerns but emphasized that it is outside its competence to address differences between CRD III and other international regulations. It reiterated that EU rules align with FSB principles and that the guidelines aim to ensure consistent implementation across the EU.

Proportionality

• Positive Reception: Respondents welcomed the inclusion of the proportionality principle in the guidelines, which allows for the neutralization of some requirements based on the prudential risk profile of the firm.
• Industry Concerns: The investment services industry suggested that more principles could be neutralized for firms with lower prudential risk, such as those not engaged in proprietary trading or firm commitment underwriting.
• CEBS Response: CEBS included a clarification that institutions benefiting from MiFID exemptions are not investment firms subject to CRD III. It also added the ratio between fixed and variable remuneration to the list of potentially neutralizable requirements for such firms. Additionally, it clarified that the specific features of these firms can be considered when determining performance criteria and applying ex-ante risk adjustment.

Specific Remarks

Implementation Timeline

• Concerns on Deadline: Some respondents found the 1 January 2011 implementation date ambitious, as it does not allow sufficient time for staff communication and legal analysis.
• CEBS Response: CEBS emphasized that the implementation date was set in line with CRD III requirements. It added text to the guidelines acknowledging that some steps may take time, such as shareholder approval and amendments to existing agreements.

Application to Non-EEA Subsidiaries/Branches

• Concerns on Level Playing Field: Respondents were concerned about the application of remuneration policies to non-EEA subsidiaries, fearing an unlevel playing field due to differences between EU and FSB rules.
• CEBS Response: CEBS clarified that non-EEA subsidiaries must follow the same remuneration principles as EEA entities, as per CRD III. It emphasized that this is to prevent the circumvention of remuneration rules through outsourcing. The guidelines also include specifications on the role of supervisory colleges to ensure consistency.

Equity-Linked and Other Instruments

• Concerns on Variable Remuneration: Some respondents, particularly from the cooperative banking and investment services sectors, raised concerns about the feasibility of including equity-linked instruments in variable remuneration due to the absence of such instruments or the risk of shareholder dilution.
• CEBS Response: CEBS provided further guidance on alternative instruments, such as those based on third-party valuation, which have similar loss-absorbing features to shares. It also committed to monitoring developments and providing further guidance if needed.

Analysis of Responses to CP42

Conclusion

The CEBS guidelines aim to ensure consistent and prudential implementation of CRD III remuneration requirements across the EU. They incorporate feedback from market participants, particularly regarding proportionality, implementation timelines, and the application of guidelines to non-EEA subsidiaries. While some concerns remain, CEBS has clarified its stance and made adjustments to the guidelines to address them, emphasizing the importance of risk alignment and the need for a coherent group-wide approach.