Remuneration Policy: Principle Of Proportionality Reconfirmed

On 16 June 2017, by way of Circular N°17/658, the CSSF adopted the European Banking Authority's (EBA's) Final Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU [the CRD IV] and disclosures under Article 450 of Regulation (EU) No 575/2013. These Guidelines, replacing the so-called "2010 CEBS Guidelines on Remuneration Policies and Practices" published by the Committee of European Banking Supervisors (CEBS), the EBA's predecessor, were initially made public on 21 December 2015, but came into force 6 months ago, on 1 January 2017.

Why on earth would the CSSF come up with a Circular adopting the EBA Final Guidelines so late in the process, i.e. 18 months after their publication and 6 months after their entry into force? Well, in this particular case, the CSSF had little choice but to try to cope with the chaotic situation created 2 years ago by the EBA itself.

To properly understand the situation, we need to slightly go back in time:

Over 2015, the European banking industry closely followed the release of the EBA Final Guidelines as, in its draft version published in March 2015, the EBA surprised everyone with a new and unprecedented interpretation of the "principle of proportionality." According to this interpretation, smaller or less complex banking institutions would have no longer been able to completely disapply the rules related to bonus payment by deferral and in instruments, implying therefore that all the Identified Staff of a banking institution would have received their bonus with a deferral and a payment in equity, regardless of the size or activities of the institution or the size of the bonus. Facing the vehement reaction of the banking industry to this completely unexpected flip-flop, the EBA eventually recognised that the application of the guidelines on deferral and payment in instruments to all entities without distinction would probably have "inappropriate and counterproductive effects" and therefore proposed, to the EU Commission, to modify the Directive to definitively remove all ambiguous interpretations of the principle of proportionality.

The EBA therefore decided to postpone the application date of its Guidelines to 1 January 2017, in order to give time to EU legislative bodies to introduce the required changes. This is why, on 23 November 2016, the EU Commission published a draft amendment of the CRD IV where a modification of the principle of proportionality was put...