30 June 2020
Last week, we reported that the European Parliament had approved “quick fix” amendments to the EU’s Capital Requirements Regulation (CRR). These amendments have now been published in the Official Journal of the EU on 26 June and applied from 27 June, with the exception of amendments relating to the calculation of the leverage ratio which apply from 28 June 2021.
As a reminder, the changes were introduced to provide temporary favourable conditions for banks to support credit flows to companies and households, and to absorb losses, mitigating the economic consequences of the COVID-19 pandemic. These amendments are wide-reaching but have a limited impact on variable remuneration distributions.
The amendments add a non-binding recital to the CRR: (a) noting that the European Banking Authority, European Central Bank and other competent authorities have issued recommendations for firms to suspend dividend payments and share buybacks during the COVID-19 pandemic; (b) encouraging competent authorities to make full use of their supervisory powers to ensure the consistent application of such recommendations, including powers to impose binding restrictions on distributions for firms or limitations on variable remuneration, in accordance with the EU Capital Requirements Directive; and (c) suggesting that the European Commission should assess whether additional binding powers should be granted to competent authorities to impose restrictions on distributions in exceptional circumstances.
As the recital impacting variable remuneration is non-binding, these changes do not reflect a change in the remuneration rules that apply to CRR regulated firms and do not currently impose restrictions on variable remuneration distributions. There is, however, a call for competent authorities to make use of their supervisory powers, which may result in further restrictions on variable remuneration distributions, and a call for the European Commission to consider introducing additional powers, which may result in new restrictions. We will keep you updated as the position develops.
If you have any questions about this alert, or if you would like to discuss your remuneration structures, please do let us know.