On 28 July 2016, the European Commission published a report on its review of the remuneration rules for banks and large investment firms under the CRD IV framework, which focuses in particular on: the efficiency, implementation and enforcement of the remuneration rules, including gaps and inconsistencies resulting from the application of proportionality; andthe impact of the “bonus cap” on competitiveness, financial stability and staff working in third country subsidiaries of EEA firms.

Authors: Tim Dolan

Background

The report follows the publication of the final European Banking Authority (EBA) guidelines on the remuneration rules under CRD IV last December, which were published along with an opinion on the application of proportionality (see our alert on this here).

Given that the new EBA guidelines took a different approach to the application of the principle of proportionality than previous guidelines prepared under the preceding CRD III regime (not permitting proportionality to be used to disapply completely some of the more onerous remuneration rules, in contrast to what some Member States, including the UK, currently allow) the EBA suggested in its opinion that CRD IV be amended to provide for limited explicit exemptions.

However, the EBA did not propose any exemption from the much maligned "bonus cap", leading the UK regulators to state that they would retain the current approach of not requiring smaller firms to apply the set ratio of fixed to variable remuneration, but instead allowing them to determine an appropriate ratio for their business.