Consultation on Supervisory Regulation on Sound Remuneration Policies

Consultation Version Regulation on Sound Remuneration Policy Wft 2021 Regulation of De Nederlandsche Bank N.V. and the Authority for the Financial Markets of [new date] containing rules regarding the sound remuneration policy of banks, investment firms and premium pension institutions (Regulation on Sound Remuneration Policy Wft 2021) De Nederlandsche Bank N.V. and the Authority for the Financial Markets Foundation; Having regard to Article 1:117, fourth and fifth paragraphs, of the Financial Supervision Act; Having regard to Directive (EU) No 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORP II Directive) (recast), in particular Article 23, Directive (EU) No 2019/878 of the European Parliament and of the Council of 20 May 2019, amending Directive No 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive No 2002/87/EC and repealing Directives No 2006/48/EC and No 2006/49/EC (Capital Requirements Directive), in particular Articles 92 to 96, and Directive (EU) 2019/2034 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU (Investment Firms Prudential Supervision Directive), in particular Articles 30 to 34; Decide

1. General provisions
   Article 1
   For the purposes of this regulation:
   a. Wft: Financial Supervision Act; b. bank: a bank, as referred to in Article 3:17, first paragraph, of the Wft or a branch of a bank located in the Netherlands, as referred to in Article 3:23, second paragraph, of the Wft;
   c. investment firm under the Capital Requirements Regulation: an investment firm with its registered office in the Netherlands to which a license as referred to in Article 2:96 of the Wft has been granted and which, pursuant to Article 1, second paragraph, part a or b, or fifth paragraph, of the Investment Firms Prudential Requirements Regulation, applies the requirements of the Capital Requirements Regulation, or in respect of which De Nederlandsche Bank has taken a decision as referred to in Article 3:4a, first paragraph, of the Wft;
   d. investment firm within the meaning of the Investment Firms Prudential Supervision Directive: an investment firm with its registered office in the Netherlands to which a license as referred to in Article 2:96 of the Wft has been granted, not being an investment firm under the Capital Requirements Regulation; e. premium pension institution: a premium pension institution, as referred to in Article 3:17, first paragraph, of the Wft.
2. Principles for a sound remuneration policy
   Article 2
   As part of sound business operations, a bank or investment firm under the Capital Requirements Regulation shall, with due observance of Chapter 1.7 of the Wft, implement a remuneration policy that complies with the requirements in Annex A to this regulation.
   Article 3
3. As part of sound business operations, an investment firm within the meaning of the Investment Firms Prudential Supervision Directive, not being a small and non-interconnected investment firm as referred to in Article 12, first paragraph, of the Investment Firms Prudential Requirements Regulation, shall, with due observance of Chapter 1.7 of the Wft, implement a remuneration policy that complies with the requirements in Annex B to this regulation.
4. An investment firm within the meaning of the Investment Firms Prudential Supervision Directive that initially did not qualify as a small and non-interconnected investment firm as referred to in Article 12, first paragraph, of the Investment Firms Prudential Requirements Regulation, but at some point does qualify as such, is no longer obliged to comply with the requirements in Annex B to this regulation, once a period of six consecutive months from the date on which it first qualified as such has elapsed, it has continuously qualified as such during that period, and it has notified De Nederlandsche Bank thereof.
5. If an investment firm within the meaning of the Investment Firms Prudential Supervision Directive no longer qualifies as a small and non-interconnected investment firm as referred to in Article 12, first paragraph, of the Investment Firms Prudential Requirements Regulation, it shall notify De Nederlandsche Bank thereof and shall comply with the requirements in Annex B to this regulation within twelve months after the date on which it no longer qualifies as such. The investment firm shall apply parts 8 to 12 of Annex B to this regulation to remuneration for services rendered or performance in the financial year following the financial year in which it first no longer qualified as a small and non-interconnected investment firm.
   Article 4
   As part of sound business operations, a premium pension institution shall, with due observance of Chapter 1.7 of the Wft, implement a remuneration policy that complies with the requirements in Annex C to this regulation.
6. Final provisions
   Article 5
   The Regulation on Sound Remuneration Policy Wft 2017 (Government Gazette 2017, 70004) is hereby repealed.
   Article 6
   This regulation enters into force at the time that Article I, part N, of the Implementation Act for the Investment Firms Prudential Supervision Directive enters into force.
   Article 7
   This regulation shall be cited as: Regulation on Sound Remuneration Policy Wft 2021 This regulation, together with an explanatory memorandum, will be published in the Government Gazette.
   Amsterdam, [date]
   De Nederlandsche Bank N.V.,
   [name]
   Director
   Authority for the Financial Markets Foundation, [name] Board Member/Chairman

Annexes to the Regulation on Sound Remuneration Policy Wft 2021
Annex A.
(annex as referred to in Article 2)

1. Banks and investment firms shall ensure that the undertakings referred to in Article 109, second paragraph, of the Capital Requirements Directive implement a remuneration policy that complies with the requirements in this annex.
2. A bank or investment firm shall implement a remuneration policy, including salaries and discretionary pension benefits, for categories of staff whose professional activities have a material impact on the institution's risk profile (Article 92, second paragraph, introductory phrase, of the Capital Requirements Directive).
3. Categories of staff whose professional activities have a material impact on the risk profile of the bank or investment firm shall include at least:
   a) all members of the management body and senior management; b) staff with managerial responsibility over the control functions or the essential business units of the bank or investment firm; c) staff who were entitled to significant remuneration in the preceding financial year, provided that the following conditions are met:
   i) the remuneration of the staff member is equal to or greater than € 500,000 and equal to or greater than the average remuneration awarded to the members of the management body and senior management of the bank or investment firm as referred to under a); ii) the staff member performs professional activities in an essential business unit and the activities are such that they have a significant impact on the risk profile of the business unit concerned (Article 92, third paragraph, of the Capital Requirements Directive).
4. The management body of a bank or investment firm in its supervisory function shall adopt the general principles of the remuneration policy, review them periodically, and be responsible for overseeing their implementation (Article 92, second paragraph, under c, of the Capital Requirements Directive).
5. The implementation of the remuneration policy shall be subject to a central and independent internal review at least annually to assess its compliance with the remuneration policy and procedures adopted by the management body (Article 92, second paragraph, under d, of the Capital Requirements Directive).
6. Staff in control functions shall be independent of the business units they oversee, have sufficient authority, and be remunerated according to the achievement of the objectives of their functions, independently of the results of the business activities they control (Article 92, second paragraph, under e, of the Capital Requirements Directive).
7. The remuneration committee referred to in part 18 of this annex or, if such a committee has not been established, the management body in its supervisory function, shall directly oversee the remuneration of senior staff in risk management and compliance functions (Article 92, second paragraph, under f, of the Capital Requirements Directive).
8. Performance assessment shall be spread over multiple years to ensure that the assessment is based on long-term performance and that the actual payment of performance-related parts of remuneration is spread over a period that takes into account the underlying business cycle of the bank or investment firm and its business risks (Article 94, first paragraph, under b, of the Capital Requirements Directive).
9. Total variable remuneration shall not limit the ability of the bank or investment firm to strengthen its capital base (Article 94, first paragraph, under c, of the Capital Requirements Directive).
10. The fixed and variable components of total remuneration shall be appropriately balanced, and the fixed component shall represent a sufficiently high proportion of the total remuneration package to allow for a fully flexible policy on variable remuneration components, including the possibility of paying no variable remuneration component (Article 94, first paragraph, under f, of the Capital Requirements Directive).
11. Remuneration packages relating to compensation or buyout of contracts from previous employment shall align with the long-term interests of the bank or investment firm, including retention rights, deferral, performance, and clawback arrangements (Article 94, first paragraph, under i, of the Capital Requirements Directive).
12. When assessing performance, as a basis for calculating variable remuneration components or pools of variable remuneration components, an adjustment shall be made for all types of current and future risks, and the cost of capital employed and the required liquidity shall be taken into account (Article 94, first paragraph, under j, of the Capital Requirements Directive).
13. When allocating variable remuneration components within the bank or investment firm, all types of current and future risks shall also be taken into account (Article 94, first paragraph, under k, of the Capital Requirements Directive).
14. A substantial portion, and in any event at least 50%, of any variable remuneration shall consist of a balanced mix of the following:
    a) shares or, depending on the legal structure of the bank or investment firm concerned, equivalent ownership interests, or share-linked instruments or, depending on the legal structure of the bank or investment firm concerned, equivalent non-cash instruments; b) where possible, other instruments as referred to in Article 52 or Article 63 of the Capital Requirements Regulation (Regulation (EU) No 575/2013) or other instruments that can be fully converted into Common Equity Tier 1 instruments or fully written down, which in any case adequately reflect the credit quality of the institution as a going concern and may be used for the payment of variable remuneration; The instruments referred to in this part shall be subject to an appropriate retention policy designed to align financial incentives with the long-term interests of the bank or investment firm. This part applies to both the portion of the variable remuneration component whose payment is deferred in accordance with part 15 of this annex, and to the portion of the variable remuneration component whose payment is not deferred (Article 94, first paragraph, under l, of the Capital Requirements Directive).
15. A substantial portion, and in any event at least 40%, of the variable remuneration component shall be deferred over a period of at least four to five years that is appropriate to the nature of the activities, their risks, and the activities of the staff member concerned. For members of the management body and senior management of banks or investment firms that are significant in terms of their size, internal organisation, and the nature, scope, and complexity of their activities, the deferral period shall not be shorter than five years.
    Deferred remuneration shall not vest faster than on a pro-rata basis. If a variable remuneration component is a particularly high amount, at least 60% of it shall be deferred. The duration of the deferral period shall be determined in accordance with the business cycle, the nature of the activities, their risks, and the activities of the staff member concerned (Article 94, first paragraph, under m, of the Capital Requirements Directive).
16. Variable remuneration, including the deferred portion, shall only be paid or vested when it is compatible with the financial situation of the bank or investment firm as a whole and justified by the performance of the bank or investment firm, the business unit, and the individual concerned.
    Without prejudice to the general principles of national contract and labour law, total variable remuneration shall generally be significantly reduced if the bank or investment firm delivers reduced or negative financial performance, taking into account both current remuneration and the reduction of payments of previously earned amounts, including through adjustment or clawback rules (Article 94, first paragraph, under n, of the Capital Requirements Directive).
17. The pension policy shall be aligned with the business strategy, objectives, values, and long-term interests of the bank or investment firm. If the employee leaves the bank or investment firm before retirement, discretionary pension benefits shall be held by the bank or investment firm for a period of five years in the form of the instruments referred to in part 14 of this annex. If an employee reaches retirement, discretionary pension benefits shall be paid to them in the form of the instruments referred to in part 14 of this annex, subject to a five-year retention period (Article 94, first paragraph, under o, of the Capital Requirements Directive).
18. The provisions in parts 14, 15, and the second paragraph of part 17 of this annex shall not apply to:
    a) a bank or investment firm that is not a large institution as defined in Article 4, first paragraph, point 146, of Regulation (EU) No 575/2013, and whose average total assets on an individual basis in accordance with the Capital Requirements Directive and Regulation (EU) No 575/2013 amount to € 5 billion or less over the four-year period immediately preceding the current financial year; b) a staff member whose annual variable remuneration does not exceed €

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