5 June 2020
Following our recent alert in relation to the implementation of the EU Investment Firms Directive (IFD) and Investment Firms Regulation (IFR), the European Banking Authority (EBA) has now published the first public consultation papers which cover prudential, reporting, disclosures and (of huge interest to us) remuneration requirements.
There are four consultation papers covering these topics:
- Remuneration requirements: there are two papers on remuneration. One covers the criteria to identify which staff are considered material risk takers. The second covers the classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration of risk takers.
- Prudential requirements: this paper covers the reclassification of certain investment firms to credit institutions, capital requirements for solo level, and the scope and methods of prudential consolidation for group level.
- Reporting requirements and disclosures: which includes drafts on the levels of capital, concentration risk, liquidity, the level of activities as well as disclosure of own funds and the information that investment firms have to provide in order to enable the monitoring of the thresholds that determine whether an investment firm has to apply for authorisation as a credit institution.
The consultation is open until 4 September 2020 and the papers can be found here. There will also be public conference calls on 30 June 2020.
As previously reported, IFD and IFR will have a profound impact on some firms' remuneration structures.
This is the first step on the journey to the implementation of IFD and IFR. These consultations provide an opportunity to shape the detail that is due to be announced in the Regulatory Technical Standards in October 2020.
Although it is likely that firms will not be required to apply the remuneration rules until the performance year beginning after June 2021, and this may be impacted by Brexit, firms need to be prepared. Firms should not miss the opportunity to review and comment on the draft provisions contained in these consultations.
We expect to have a roundtable to discuss some of the points in the draft consultations.