Has the regulator implemented rules in relation to remuneration paid by banks to its staff?
Belgian rules on remuneration paid by banks to its staff are contained in the Law of April 25, 2014 on the status and control of credit institutions (the Banking Law); the Regulation of February 8, 2011 of the Banking, Finance and Insurance Commission (now the Financial Services and Markets Authority) on the remuneration policy of financial institutions (approved by Royal Decree of February 22, 2011); and the Circular of February 14, 2011 of the Banking, Finance and Insurance Commission on the establishment of a good remuneration policy (altogether, Remuneration Rules). The Remuneration Rules transpose into Belgian law the remuneration provisions of the Capital Requirements Directive III (CRD III) and the Capital Requirements Directive IV (CRD IV).
What categories of staff are caught by the regulator’s rules?
The Banking Law provides that the remuneration policy must cover the members of the management body, as well as categories of staff whose professional activities have a material impact on the risk profile of the credit institution, including senior management, risk takers, individuals holding “independent control functions” (i.e., internal audit, compliance, and risk management), as well as employees whose total remuneration puts them on the same level as senior managers and risk takers.
What are the key regulatory rules?
Key requirements under the Remuneration Rules include the following:
- remuneration policy should ensure sound and effective risk management, and should prevent the taking of risk that exceeds the tolerance level set by the credit institution;
- remuneration policy should be in line with the business strategy, objectives, values and long-term interests of the credit institution, and include measures to avoid conflicts of interest;
- management body must adopt and periodically review the general principles of the remuneration policy and be responsible for its implementation; and
- remuneration policy must be evaluated at least once a year.
The above requirements are subject to the principle of proportionality, which means that their application may vary depending on the size and internal organization of the credit institution and the nature, scope and complexity of its activities.
Are bonuses subject to the regulator’s rules?
The Banking Law provides that the remuneration policy must cover all types of remuneration, including variable remuneration (bonuses), and operate a clear distinction to determine the criteria for fixing:
- the fixed basic salary, which should reflect relevant professional experience and organizational responsibilities, as outlined in the job description; and
- variable remuneration based on the performance criteria, which should reflect sustainable performance adapted to the level of risk, and additional services provided in addition to those set out in the job description.
The Banking Law further provides that:
- variable remuneration should be payable only if it is sustainable, given the financial situation of the credit institution as a whole, and is justified by the performance of the credit institution, the operating unit, and the individual concerned;
- variable remuneration must be limited to the highest of the two following amounts: (i) 50% of the fixed salary; or (ii) €50,000, which amount cannot exceed that of the fixed salary;
- variable remuneration must be subject to “malus” or “claw-back” arrangements; and
- the payment of guaranteed variable remuneration should be exceptional, occur only where the firm has a sound and strong capital base, and be limited to the first year of employment.
What is the position concerning role based allowances?
In line with the EBA Report of October 2014 on the application of CRD IV regarding the use of allowances, role-based allowances that are discretionary, not predetermined, not transparent to staff or not permanent should be classified as variable remuneration.
Do the regulator’s rules on remuneration have extraterritorial effect?
The Remuneration Rules apply to Belgian credit institutions on a consolidated basis, including their Belgian and foreign subsidiaries/branches, as well as to Belgian subsidiaries/branches of non-EEA based credit institutions.
Do you anticipate further reform in this area?
We are not aware of any further reform in this area.
Must an institution’s remuneration policy be disclosed to the regulator?
Credit institutions must publish their remuneration policy in accordance with article 450 of the Capital Requirements Regulation and provide to the Belgian National Bank (BNB) the published information so it can carry out comparative analyses of remuneration trends and practices.
Credit institutions must also provide to the BNB information on the number of persons earning €1 million or more per financial year, including their job responsibilities, the business area involved and the main elements of salary, bonus, long-term award and pension contribution. This information is forwarded by the BNB to the European Banking Authority.