14 January 2014

The European proposals for next year's bonus round

Harvey Knight
Partner | UK

The European Banking Authority (EBA) approved the draft regulatory technical standard (RTS) on the definition of material risk takers (MRTs) which will apply to all firms under the scope of the CRD IV. The RTS includes a requirement that all employees whose total remuneration is greater than €500,000 should be deemed to be MRTs. If it is approved, the RTS will come into effect during 2014, ahead of the 2014/15 remuneration round.

Whether or not an employee’s professional activities have a material impact a firm’s risk profile is one of the key criteria in determining whether an employee is “code staff”. The EBA states that as a general principle, staff will be identified as having a “material impact” on the institution’s risk profile if they meet one or more of the following criteria:

  • Standard qualitative criteria related to the role and decision-making power of staff members (such as if the individual is a member of a management body, is a senior manager or has the authority to commit significantly to credit risk exposures).
  • Standard quantitative criteria, related to the level of total gross remuneration in absolute or in relative terms. In this respect, staff should be identified if their total remuneration exceeds, €500,000 per year, or they are included in the 0.3% of staff with the highest remuneration in the institution, or their remuneration is equal or greater than the lowest total remuneration of senior management and other risk takers.

This definition has the potential of expanding the number of “Code Staff” in a firm and along with the bonus capping provisions in CRD IV (which came into effect on 1 January); firms should be looking to address their internal policies and planning, if they have not done so already.

Category: Article