The CSSF oversees compliance with the requirements regarding remuneration policies in the financial sector. The procedures and arrangements implemented by the entities with respect to remuneration form an integral element of robust internal governance arrangements which in turn help ensure that risks are managed in an efficient and durable manner. The remuneration structure, its determination processes and the policies implemented by the entities in this area are part of the sound governance arrangements of the financial sector entities, the aim of which is to avoid excessive risk-taking.
Institutions should take into account the nature, scale and complexity of their activities when determining their remuneration policies.
CRR investment firms (CRR IFs)
The remuneration policy must, among others, describe the governance mechanisms surrounding remuneration issues. In addition, CRR IFs must establish a list of staff identified as having a material impact on the CRR IF’s risk profile and detail the process for the evaluation of the performance used to allocate a variable remuneration.
CRR IF must comply with the requirements of the Law of 23 July 2015 amending the Law of 5 April 1993 on the financial sector (“LSF”) transposing the requirements concerning the governance arrangements and remuneration policies of Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV) into national law. CRR IF must also comply with the disclosure requirements of Article 450 of Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR).
Moreover, CRR IF must comply with the requirements of EBA Guidelines 2015/22 on sound remuneration policies for all staff and for the material risk takers. CRR IF must equally comply with the EBA Guidelines 2016/06 that specify the requirements for the design and implementation of remuneration policies and practices in relation to the offering or provision of banking products and services to consumers.
Furthermore, CRR IF must comply with Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities (RTS) have a material impact on an institution’s risk profile and, particularly, with the qualitative and quantitative criteria contained therein in the identification of each material risk taker within the CRR IF. The CRR IF should list all the material risk takers and indicate the criteria that led to his/her identification.
Commission Delegated Regulation (EU) No 527/2014 of 12 March 2014 supplementing Directive (EU) No 2013/36/EU with regard to regulatory technical standards specifying the classes of instruments that adequately reflect the credit quality of an institution as a going concern and are appropriate to be used for the purposes of variable remuneration (RTS) specifies the classes of instruments that adequately reflect the credit quality of an institution as a going concern and are appropriate to be used as a component of variable remuneration. CRR IFs must ensure a proper application of that Regulation.
When applying the principle of proportionality, CRR IF should refer to CSSF Circular 11/505 (still applicable according to CSSF Circular 17/658).
Finally, in case a variable remuneration of a material risk taker exceeds 100% of the fixed remuneration, the notification procedure defined in Article 38-6(g) of the LSF must be followed as described in CSSF Circular 15/622.
Laws, regulations and directives
Other reference texts
Non-CRR investment firms (non-CRR IFs)
Non-CRR IFs must comply with the remuneration requirements of CSSF Circulars 10/437, 10/497 and 11/505.
Non-CRR IFs must determine, given their authorised activities, whether they fall under the scope of CSSF Circular 10/437 or 10/497 and apply the applicable requirements.