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ICAP Response to CEBS Consultation Paper on Remuneration Policies and Practices (CP42)

Core Content

ICAP Group, with its holding company ICAP plc, has responded to the Committee of European Banking Supervisors (CEBS) consultation paper on remuneration policies and practices (CP42). The response highlights the importance of aligning remuneration with risk, while emphasizing the need for proportionality and discretion in applying the proposed guidelines.

Main Points

1. Nature of ICAP's Business

• ICAP plc is the holding company of the ICAP Group, listed on the London Stock Exchange (IAP).
• The Group generates the majority of its earnings from the EU, but also has substantial operations in the US and Asia.
• ICAP operates in several EU Member States, primarily as "investment firms" under Directive 2004/39/EC.
• The Group does not include credit institutions, and its revenues are derived from commissions and fees for services such as brokerage, bulk messaging, and data provision.

2. Risk Mitigation and Remuneration

• ICAP views appropriate remuneration policies as essential for effective risk mitigation.
• It acknowledges the importance of the CEBS consultation but cautions that the proposed guidelines may not be proportionate for firms like ICAP, which are not exposed to the same level of risk as credit institutions, fund managers, or insurance companies.

3. Proportionality in Remuneration Policies

• ICAP supports a risk-oriented approach to remuneration but warns against overly rigid rules.
• It argues that mandatory deferral and restrictions on cash bonuses could distort the relationship between risk and reward.
• The Group's variable remuneration is based on non-contingent commissions, which are typically collected within 60 days and are not dependent on future performance of underlying assets or transactions.

4. Competitive Implications

• ICAP notes that its competitors are mainly non-EU based, and the proposed rules may create an unbalanced competitive environment.
• The deferral provisions in the consultation could provide a systematic advantage to non-EEA firms, which are not subject to the same regulatory constraints.
• This would discourage staff from working in the EU or for EU-regulated businesses, potentially affecting the Group's ability to attract and retain talent.

Key Information

5. Variable Remuneration Structure

• Variable remuneration for brokers is based on collected commissions, which are contractual obligations and paid in cash after a short delay (1–4 months).
• Each broker has a unique commission structure, and the Group does not apply standard terms.
• ICAP believes that variable remuneration should not be subject to mandatory deferral, as it is not tied to risk exposure.

6. Discretionary Remuneration for Senior Staff

• ICAP's senior staff are already subject to variable remuneration that includes deferred elements and share components.
• These arrangements are in line with the aims of CRD III and are being updated to reflect the principles of risk alignment and performance-based incentives.

7. Call for Supervisory Discretion

• ICAP supports the application of proportionality principles in the context of remuneration policies.
• It urges Supervisors to maintain discretion in applying the guidelines, particularly in Annex 2 (o) and (q), to avoid creating a one-size-fits-all system that may not be appropriate for all types of firms.

Conclusion

ICAP is supportive of the general objectives of CRD III and the High-level Principles for Remuneration Policies. However, it emphasizes the need for proportionality and flexibility in the application of remuneration rules, particularly for firms that do not include credit institutions. The Group advocates for a system that allows Supervisors to exercise discretion and avoid imposing rigid, mandatory deferral structures that may not be suitable for its business model and could impact competitiveness.