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CEBS Consultation Paper on Guidelines on Remuneration Policies and Practices (CP42) Summary

Core Content

The European Association of Co-operative Banks (EACB) has provided detailed comments on the CEBS Consultation Paper on Guidelines on Remuneration Policies and Practices (CP42). The EACB emphasizes the importance of aligning remuneration policies with sound risk management, while also highlighting concerns about the practicality and proportionality of the guidelines.

Main Views

1. General Remarks

• The EACB supports the objective of CEBS guidelines to ensure remuneration policies align with effective risk management.
• They note that co-operative banks were not responsible for the financial crisis and demonstrated resilience during it.
• The CEBS guidelines are more specific and detailed than CRD III, which may lead to excessive implementation requirements and high costs.
• The EACB finds the CEBS interpretation of CRD III to be overly restrictive and lacks a clear structure for practical application.
• The guidelines do not distinguish well between general and specific requirements, creating confusion and implementation challenges.
• The deadline for implementation (1st January 2011) is not feasible for many institutions.

2. Scope of Guidelines

• The EACB expresses concern that the guidelines do not address the legal implications of applying CRD III to existing contracts, especially retroactively.
• They highlight that changing terms of existing contracts may breach national labor and contract laws.
• The guidelines should take into account Recital 14 of CRD III, which states that remuneration provisions should not conflict with national labor and contract laws.
• The EACB urges CEBS to provide clear guidance for national supervisors to clarify the legal situation in each jurisdiction and to base the implementation of new standards on a "best-possible" basis, especially for non-EEA countries.

3. General Requirements

• The EACB criticizes the strict interpretation of Annex V, Section 11, point 23 of CRD III regarding the application of remuneration policies to subsidiaries of EEA parent institutions located offshore.
• They argue that such strictness could lead to legal problems and competitive distortions in non-EEA countries.
• The EACB suggests that CEBS should provide more flexible guidelines that consider the practical implications of CRD III for global institutions.

4. Provisions for Identified Staff

• The EACB recommends that the identification process for "material risk takers" should be more detailed and based on relevant indicators.
• They suggest developing more general criteria for identifying staff with material risk influence, rather than relying on overly specific categories.
• The EACB believes that a strict governance structure can mitigate the risk of certain staff members, and thus should not automatically classify them as risk takers.
• They propose that the guidelines should be more flexible, especially for smaller and less complex institutions, and that a minimum threshold (e.g., based on balance sheet size) should be introduced for neutralization.
• The EACB argues that retail banking activities should be excluded from the scope of the guidelines, as they do not typically involve significant risk-taking.

Key Information

• Share-based payments: Co-operative banks are not suitable for share-based payments due to their unique structure and principles.
• Non-listed banks: Many co-operative banks are non-listed, making share-based payments impractical and legally challenging.
• Alternative models: The EACB suggests using cash-bonus-bank models to achieve the same deferral and retention effects without the complexities of share-based payments.
• Proposals for CEBS:
  • Clarify the legal implications of applying the guidelines to existing contracts.
  • Provide more flexible and differentiated guidelines for identifying staff with material risk influence.
  • Exclude retail banking activities from the scope of the guidelines.
  • Allow for cash-payout plans with weighted factors based on creditworthiness or company performance.
  • Leave further details to be negotiated between credit institutions and national supervisors.

Conclusion

The EACB calls for a more proportionate, flexible, and practical approach to remuneration policies, particularly for co-operative and non-listed banks. They emphasize the need for CEBS to address the specific characteristics of these institutions and to ensure that the guidelines do not create unnecessary legal and operational burdens.