General guidelines regarding remuneration policies in stock exchanges

Finansinspektionen’s Regulatory Code
Publisher: Chief Legal Counsel Eric Leijonram, Finansinspektionen, Sweden, www.fi.se ISSN 1102-7460 This translation is furnished solely for information purposes. Only the printed version of the regulation in Swedish applies for the application of the law. Finansinspektionen’s general guidelines regarding remuneration policies in stock exchanges; decided on 18 June 2024. Finansinspektionen provides the following general guidelines.
Chapter 1 Scope and definitions
Scope
These general guidelines apply to stock exchanges.
The general guidelines provide guidance on how a stock exchange should measure, govern, report and exercise control over the risks that may arise from remuneration systems. Where a stock exchange is the parent company in a group, the board of directors of the parent company should endeavour to ensure that all of the undertakings in the group that are subject to financial supervision adopt guidelines consistent with these general guidelines. This does not apply if

1. binding foreign regulations entail that all or certain parts of the remuneration
   policy cannot be applied, or
2. the conditions for variable remuneration in a foreign labour market substantially
   deviate from the conditions in Sweden.
   Definitions
   The terms used in these general guidelines have the following meaning:
3. Senior executive: A managing director, deputy managing director and a person in
   the senior management of the stock exchange who reports directly to the board of directors, the managing director or the deputy managing director.
4. Employee who can influence the stock exchange’s risk level: An employee
   belonging to a category of staff that, as a part of their assignment, exercises or can exercise a not insignificant influence on the stock exchange’s level of risk. These categories of staff are defined in the stock exchange’s remuneration policy. They should normally include, among others, employees in management positions, employees with control functions, and leading strategic positions (for example, business area managers).
5. Remuneration: Payment, either directly or indirectly, from the stock exchange to
   a person within the scope of their employment (cash salary, other cash remuneration, FFFS 2024:6 Published on 25 June 2024

FFFS 2024:6 remuneration in the form of shares or share-linked instruments, pension provisions, severance payments, company cars, etc.).
4. Remuneration policy: A document laying down the grounds and principles for
how remuneration shall be determined, how the policy shall be applied and followed up, and how the stock exchange identifies which employees can influence the stock exchange’s level of risk.
5. Control function: A function for risk management, compliance, internal audit or
similar.
6. Variable remuneration: A part of the remuneration, usually performance-based,
which is not determined in advance in terms of its amount and scope. In this context, variable remuneration includes salary that is not commission-based and not linked to future risk assumptions that may alter the stock exchange’s income statement or balance sheet. Other legislation These general guidelines only apply if they are consistent with applicable labour legislation. Furthermore, these general guidelines do not impact the rights of the parties of the labour market during collective bargaining. Nor do these general guidelines affect obligations set out in binding contracts that are already applicable. The stock exchange should ensure that the contracts it enters into with individual employees are consistent with these general guidelines. Proportionality When applying these general guidelines, consideration should be given to the stock exchange’s size and the nature, scope and complexity of its business.
Chapter 2 Remuneration policy
The stock exchange should have a remuneration policy for identifying, measuring, governing, reporting internally and controlling the risks associated with its business. The remuneration policy should be consistent with and promote effective risk management and not encourage excessive risk-taking. The remuneration policy should encompass all employees. The remuneration policy should be revised regularly so that it develops in step with changes to the stock exchange’s situation. The stock exchange should base its remuneration policy on an analysis of how the policy affects the risks to which it is exposed and how these risks are being managed. Long-term perspective The remuneration policy should be designed so that the remuneration to individual employees does not affect the long-term interests of the stock exchange. The remuneration policy should also be designed such that the stock exchange’s total remuneration for a single period of time does not jeopardise its ability to report a positive result over a business cycle.

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Performance measurement
When the stock exchange uses variable remuneration, it should take into consideration how this may affect its performance in the long term. When the stock exchange decides the basis for remuneration, it should take into account the fact that performance may subsequently be affected by current and future risks. In its performance measurement, the stock exchange should also take into account the actual costs of holding capital and liquidity that are inherent to the business to which the performance measurement relates. The stock exchange should base performance-based remuneration on an employee’s performance as well as the performance of the business unit and the stock exchange as a whole. When the stock exchange determines the remuneration for an individual employee, it should take into account qualitative criteria such as the employee’s compliance with internal rules and procedures and respect for the rules concerning conduct toward customers and investors. Balance between fixed and variable remuneration If the remuneration contains a variable component, the stock exchange should ensure that there is a suitable balance between fixed and variable components. What is considered an appropriate balance may vary between different categories of staff and the area in which the stock exchange operates. When determining the share of the total remuneration that will be variable, the stock exchange should take into account the following factors:
a) the amount and cost of the extra capital required to cover the risks that affect performance for the period, b) the size and cost of the liquidity risk, and c) the risk that expectations regarding future revenue will not be realised. The stock exchange should ensure that the total variable remuneration does not become so large that it limits the stock exchange’s ability to strengthen its own funds. It should be possible to set the variable remuneration at zero. Composition of variable remuneration When determining whether the remuneration shall consist of cash or shares, respectively, share-linked instruments or other financial instruments or a combination of these, the stock exchange should endeavour to encourage long-term value creation and apply a well-considered horizon of risk. Limits to guaranteed variable remuneration Guaranteed variable remuneration should constitute an exception and only be allowed in conjunction with new employment, and then be limited to the first year. Deferred payment For an employee who can influence the stock exchange’s level of risk, at least 60 per cent of the variable remuneration should be deferred for at least three years. This should also apply to the date of final acquisition of shares, share options or other equity instruments if such are included in the variable remuneration.

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The deciding factor determining the earliest date on which the deferred component may be paid should be the risks that the business activities in which the employee has been involved entail to long-term, sustainable performance. Loss of remuneration The remuneration policy should be designed so that the stock exchange can decide that a deferred payment may be cancelled entirely or partly if it subsequently emerges that the employee, business unit or stock exchange has not fulfilled the performance criteria. The stock exchange should also be able to refrain from paying deferred variable remuneration if the stock exchange’s position has significantly weakened. This is especially true if the stock exchange is no longer assumed to be able to maintain its business activity. The stock exchange should endeavour to ensure that employees commit to not using personal hedging strategies or insurance policies to mitigate or eliminate the effects of variable remuneration that has not yet been paid, adjusted or cancelled if it subsequently emerges that the performance criteria have not been met or that the stock exchange’s position has significantly weakened. Changed conditions for remuneration Provisions in individual employment contracts on the payment of remuneration during the notice period or after employment ends should be consistent with that set out in these general guidelines.
Chapter 3 Governance
A stock exchange’s board of directors should decide on a remuneration policy. The decision should be based on a sufficient analysis of the risks that may be associated with the remuneration policy. The board of directors should ensure that the remuneration policy is applied and followed up. The board of directors should also decide on remuneration for senior executives. Where applicable, the decision of the board of directors should adhere to the guidelines decided by the general meeting. A remuneration committee within the board of directors or, if there is no such committee, a specially appointed board member, should be responsible for preparing significant remuneration decisions and decisions on measures for following up the application of the stock exchange’s remuneration policy. Board member who prepares remuneration decisions A chair of the remuneration committee or a director who is responsible for preparing decisions on remuneration should not work in the management of the stock exchange or in the management for the stock exchange’s subsidiaries. This person should have sufficient knowledge and experience of risk analysis to allow them to make an independent assessment of the appropriateness of the remuneration policy. This assessment should include how the remuneration policy affects the stock exchange’s risks and risk management.

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Conflicts of interest
A stock exchange should ensure that the remuneration policy includes measures for avoiding conflicts of interest. The stock exchange should describe, document and transparently report how it determines remuneration in a comprehensible way. When designing the remuneration policy, the board of directors should ensure that the control functions concerned are able to comment on its content. Other members of staff should also contribute to a comprehensive analysis if this is necessary. Members of the remuneration committee and staff whose work involves applying the remuneration policy and monitoring the follow-up of the remuneration should have the relevant expertise and be organisationally independent of the business units they supervise.
Chapter 4 Follow-up and control
When appropriate and at least once a year, a control function should independently review whether the stock exchange’s remuneration complies with the remuneration policy. When necessary, the control function should report the results of the review to the board of directors without delay. Otherwise, reporting should take place a at least once a year, no later than in conjunction with the adoption of the annual report. The control function can consist of an existing internal control body such as internal audit or risk control, or a specially appointed function. The stock exchange can also engage external consultants, for example auditors, to perform the duties of the control function. Remuneration for employees in control functions Employees whose work involves reviewing the business, for example the risk control function, the compliance function and the internal audit function, should be independent of the business units they monitor. They should also have appropriate powers and resources and be remunerated independently of the business areas they are supervise. The remuneration of employees in control functions should always be at a level that allows the stock exchange to employ qualified and experienced staff in these functions.
Chapter 5 Disclosure of information about remuneration
An account of the stock exchange’s remuneration should be disclosed in conjunction with the adoption of the annual report. The stock exchange can present this information in the annual report, in an appendix to the annual report or on its website. If the information is not included in or appended to the annual report, the stock exchange should disclose in its annual report where the information is published. The information should be available for at least one year after its disclosure. The stock exchange should provide relevant, clear and comprehensible information about its remuneration. The following information should be disclosed:

FFFS 2024:6

1. the decision-making process for determining the remuneration policy, including,
   if applicable, information about the composition and authorisations of the remuneration committee and the role of relevant stakeholders,
2. the criteria used for performance measurement and risk alignment,
3. the linkage between performance and remuneration,
4. the performance criteria on which the entitlement to shares, equity instruments,
   financial instruments and other variable components of remuneration is based,
5. principles for deferred payment and conditions for utilising entitlements,
6. the risk analysis forming the basis for the design of the remuneration policy,
7. the expensed total amount of remuneration for the last financial year broken down
   by senior executives, other employees who can influence the stock exchange’s level of risk and all employees, divided into fixed and variable remuneration and stating the number of people who have received fixed and variable remuneration, respectively, and, where applicable, divided into business areas or corresponding business units,
8. percentage distribution of variable remuneration into
   a) cash, b) shares, share-linked instruments and other financial instruments, and c) other,
9. remuneration earned during the last financial year, disbursed remuneration
   specified as remuneration that has been earned during the last financial year, and disbursed remuneration that has been earned during previous financial years and adjusted earned remuneration that has not been disbursed,
10. the last financial year’s accumulated outstanding deferred remuneration, where
    appropriate divided into used and unused entitlements,
11. the expensed total amount of severance payments for the last financial year and
    guaranteed variable remuneration, the number of people who have received such remuneration and the justifications,
12. the last financial year’s accumulated total amount of severance payments and
    guaranteed variable remuneration that have been awarded, the number of people encompassed by such awards and the highest single such award, and
13. the severance payments and guaranteed variable remuneration paid for the last
    financial year.
    The information set out in points 7–13 should be published in a manner that does not reveal the financial circumstances of individuals. Information for employees The stock exchange should inform employees affected by the remuneration policy of the criteria that govern their remuneration and of how their performance is being

FFFS 2024:6 assessed. The assessment process and the design of the remuneration policy should be clearly documented and made available to all employees. _______________ These general guidelines shall enter into force on 01 July 2024, whereupon Finansinspektionen’s general guidelines (FFFS 2020:15) regarding remuneration policies in stock exchanges and clearing organisations shall be repealed. DANIEL BARR Axel Olofsson