Has the regulator implemented rules in relation to remuneration paid by banks to its staff?
Yes. The Capital Requirements Regulation (CRR) is directly applicable in the Netherlands and the provisions of the Capital Requirements Directive IV (CRD IV) have been implemented in the Act on the Financial Supervision (Wet op het financieel toezicht, AFS) and the Regulation on Sound Remuneration Policies under the AFS 2014 (Regeling beheerst beloningsbeleid Wft 2014, the Regulation).
What categories of staff are caught by the regulator’s rules?
All persons working under the responsibility of financial undertakings (i.e. including contractors and seconded persons) are subject to the AFS and the Regulation.
The definition of ‘financial undertaking’ is very broad and includes, among others, banks, insurers, investment firms, fund managers and payment services providers which have their statutory seat in the Netherlands, as well as their subsidiaries (both inside and outside the Netherlands).
In this guide we will refer to banks, but please note that these rules apply to all financial undertakings which are subject to the AFS and the Regulation.
What are the key regulatory rules?
The most important regulatory rules are:
- Bonus cap: Variable remuneration is capped at 20% of fixed annual remuneration. ‘Fixed remuneration’ is defined as the part of total remuneration that consists of unconditional financial or non-financial payments. ‘Variable remuneration’ is defined as all remuneration that is not fixed remuneration.
- Guaranteed variable payments: Guaranteed variable payments are, in principle, not permitted. Please see our answer to question 4.
- Sound remuneration policy: Banks are required to have in place a sound remuneration policy (beheerst beloningsbeleid) which promotes sound and effective risk management.
- Maximum severance payment: Banks are not allowed to pay severance payments exceeding 100% of the fixed annual remuneration of the relevant person.
- Clawback: Banks are required to reduce or reclaim variable remuneration in instances where the relevant person did not meet the required standards of competence and/or behavior, or was responsible for action which led to the financial situation of the financial undertaking deteriorating substantially.
Are bonuses subject to the regulator’s rules?
Variable remuneration cap
There has been heated debate on this topic as to the Netherlands has deviated from the EU rules in a much stricter way. Banks are not allowed to pay to any person working under its responsibility variable remuneration exceeding 20% of their fixed annual remuneration.
However, there are certain exceptions to the 20% variable remuneration cap, including, but not limited to the following:
- persons predominantly working outside the Netherlands (but within the EEA) are subject to a 100% variable remuneration cap;
- persons predominantly working outside the EEA are subject to a 200% variable remuneration cap, provided that the relevant procedures as determined in the CRD IV are followed and subject to shareholder approval;
- persons whose remuneration is not covered by a collective labor agreement, provided that the average variable remuneration of such persons collectively does not exceed 20% (a 100% variable remuneration cap applies on an individual basis); and
- branch offices in the Netherlands of banks (and investment firms) with a statutory seat in another member state are excluded from the 20% variable remuneration cap. These branch offices are subject to the CRD IV variable remuneration cap of the member state where the relevant bank (or investment firm) has its statutory seat;
Banks are permitted to pay ‘retention bonuses’ exceeding the 20% variable remuneration cap to persons working under their responsibility, provided that:
- this is necessary in the context of a structural organisational change;
- the purpose of the retention bonus is to retain the persons concerned;
- the retention bonus combined with ‘regular’ variable remuneration does not exceed the 100% - or insofar as applicable under CRD IV, 200% - variable remuneration cap; and
- approval has been obtained from the Dutch regulator.
Guaranteed variable remuneration
Guaranteed variable payments are not permitted, unless: (i) the payment relates to the employment of a new person; (ii) at the time of the payment, that person has been in employment for less than a year; and (iii) the financial undertaking concerned meets certain capital requirements.
The Dutch Civil Code (Burgerlijk Wetboek) already contained malus and clawback-arrangements. The new remuneration rules as laid down in the AFS are in addition to these rules. In certain circumstances, the bank is obliged to reduce or reclaim variable remuneration which has been paid to a person working under its responsibility (please refer to question 3).
Variable remuneration and state aid
The AFS already contained a prohibition to pay variable remuneration to the management of banks which have received state aid.
What is the position concerning role based allowances?
In October 2014, the EBA published a report on the application of CRD IV regarding the use of allowances. In this report the EBA stated that it is of the view that role-based allowances which are discretionary, not predetermined, not transparent to staff or not permanent should not be considered as fixed but should be classified as variable remuneration, in line with the letter and purpose of CRD IV.
It is expected that the Dutch regulator will adhere to this report.
Do the regulator’s rules on remuneration have extraterritorial effect?
As set out above in our answer to question 2, the Dutch remuneration rules are applicable to financial undertakings with their statutory seat in the Netherlands as well as their subsidiaries (including subsidiaries abroad).
If a bank with its statutory seat in the Netherlands is part of a group and its ultimate parent company has its statutory seat in the Netherlands, the Dutch remuneration rules will apply to all group companies (irrespective of their location or whether they qualify as financial undertakings), unless the main activities of the group do not relate to the financial sector.
If an ultimate parent company of a bank has its statutory seat outside the Netherlands, the parent company itself does not have to comply with the Dutch remuneration rules. However, any subsidiary with its statutory seat in the Netherlands which qualifies as a bank will be subject to these rules.
Do you anticipate further reform in this area?
The CRD IV provides that the European Commission, in close cooperation with the EBA, will submit a report to the European Parliament and to the Council of the EU, together with a legislative proposal if appropriate, on the remuneration provisions contained within it and CRR. This report is to be submitted by June 30, 2016.
Furthermore, on January 29, 2015, the European Central Bank issued a press release in which it stated that over the coming months it will thoroughly review the variable remuneration of the EU banks that it supervises.
Must an institution’s remuneration policy be disclosed to the regulator?
Banks are required to include a description of their remuneration policy in their annual report, including information on the number of persons within the bank that receive remuneration amounting to EUR 1 million or more per financial year.
Furthermore, banks are required to disclose to the Dutch regulators how they apply the rules concerning maximum variable remuneration. The Dutch regulator has a duty to collect information on remuneration practices from banks at a consolidated level and significant subsidiaries to benchmark remuneration trends and practices. The Dutch regulator will submit this information to the European Banking Authority.