19 December 2012

European Banking Federation comments on ESMA consultation on MiFID I remuneration guidelines

The EBF believes remuneration policies and practices are a core element of MiFID as well as of other pieces of European financial legislation. The European banking industry supports having in place effective measures on remuneration practices and generally welcomes ESMA’s work on this area.

The EBF would like to stress that the European banking industry has profoundly amended their remuneration policies since 2007 with the entry into force of MiFID which contains provisions on this areas. According to Article 13 (3) of MiFID, investment firms shall establish policies designed to prevent conflicts of interest. In particular, this means that the fixed pay should be at least sufficient to exercise the activity in a diligent manner and that the variable pay is designed based on the quality of the services provided and the compliance with rules and procedures.

In this respect, the EBF believes that there should be an appropriate balance between fixed and variable remuneration. Institutions should therefore be allowed to determine the appropriate allocation between fixed and variable as this ratio may vary depending on the activity. As recognized by CEBS in its guidelines published in December 2010 (CP42), variable remuneration provides an incentive for staff members to pursue the goals of the company and enables them to share in its success. Furthermore, variable remuneration is also an important element of cost flexibility for institutions. CEBS’ guidelines also states that: "Because situations vary enormously, it is not feasible to decree one optimal fixed and variable relationship between components of remuneration." Therefore, the EBF supports that firms are allowed to consider and align various purposes when designing and applying remuneration principles and practices.

In addition to the remuneration provisions contained in the MiFID review, CRD III also covers remuneration policies. The EBF therefore calls on ESMA to liaise with EBA in order to avoid duplication of requirements when preparing technical standards/guidelines on remuneration.

Finally, from an international perspective, the EBF highlights that it is of the utmost importance to maintain a level playing field on remuneration policies within the EU and on a global level; otherwise there is a risk of creating regulatory arbitrage.

 

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