High and inconsiderate bonuses were in part blamed for the financial crisis of 2008. It is believed that inadequate remuneration policies tended to generate higher risks by stimulating the search for profits over the consideration of reasonable financial risks.
European authorities took measures to minimise incentives for excessive risk-taking and subsequently published new remuneration rules as part of the Capital Requirements Directive (“CRD3”) requiring firms to implement remuneration policies, practices and procedures that are consistent with and promote effective risk management.
The CRD3 will bring over 2,500 firms within the scope of the FSA’s existing Remuneration Code, including asset managers and advisers, hedge fund managers, brokers and UCITS funds as well as corporate finance and venture capital firms.
The FSA recently published a Consultation Paper on how the CRD3 requirements on the disclosure of remuneration are expected to be implemented and is consulting until 8 December, on the following subjects in particular:
Frequency of disclosure
The FSA recommends that firms publish disclosures at least on an annual basis and as soon as practicable during 2011, setting a deadline of 31 December 2011 for the first disclosure.
Form of disclosure
The FSA suggests that disclosures are made as per the existing rules under BIPRU 11.3.10:
i. firms may determine the appropriate medium, location and means of verification;
ii. firms must provide all disclosures in one medium or location where feasible;
iii. equivalent disclosures made under other requirements (e.g. accounting) may be deemed to constitute compliance; and
iv. if disclosures are not included in financial statements, firms must indicate where
they can be found.
Proportionality of disclosure
The FSA intends to divide firms into four tiers based primarily on their regulatory capital and regulatory permissions, allowing each group to be subject to a different degree of disclosure. Small or non-complex institutions should only be expected to provide some qualitative information and very basic quantitative information where appropriate.
The final version of the Revised Remuneration Code will be published in December 2010, leaving very little time for firms falling under the scope of the Remuneration Code to review and implement the new rules before 1 January 2011.
How we can assist you
Luxembourg is one of the first EU countries having implemented the CRD3 requirements to all firms falling under the supervision of the local regulator, the CSSF.
Through our presence in Luxembourg which includes regulated lawyers admitted in their home jurisdiction and regulated by the Luxembourg Bar, we have already guided several Luxembourg clients on implementing the provisions relating to remuneration requirements, as implemented as part of the CRD3, constantly liaising with the CSSF.
We can provide an in-depth study of your particular circumstances in order to assess how and which employees of your company these provisions would apply to.
Following the assessment and as part of a second stage development, we can assist you in drafting a Remuneration Policy with potential options available to your firm in order to remunerate your team, taking into account your objectives and in compliance with the CRD3 provisions.
For further information, please do not hesitate to contact us.
