DIRECTIVE 2010/76/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of 24 November 2010
amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 53(1) thereof,
Having regard to the proposal from the European Commission,
Having regard to the opinion of the European Central Bank (1),
Having regard to the opinion of the European Economic and Social Committee (2),
Acting in accordance with the ordinary legislative procedure (3),
Whereas:
(1)
Excessive and imprudent risk-taking in the banking sector has led to the failure of individual financial institutions and systemic problems in Member States and globally. While the causes of such risk-taking are many and complex, there is agreement by supervisors and regulatory bodies, including the G-20 and the Committee of European Banking Supervisors (CEBS), that the inappropriate remuneration structures of some financial institutions have been a contributory factor. Remuneration policies which give incentives to take risks that exceed the general level of risk tolerated by the institution can undermine sound and effective risk management and exacerbate excessive risk-taking behaviour. The internationally agreed and endorsed Financial Stability Board (FSB) Principles for Sound Compensation Practices (the FSB principles) are therefore of particular importance.
(2)
Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (4) requires credit institutions to have arrangements, strategies, processes and mechanisms to manage the risks to which they are exposed. By virtue of Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (5), that requirement applies to investment firms within the meaning of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (6). Directive 2006/48/EC requires competent authorities to review those arrangements, strategies, processes and mechanisms, and to determine whether the own funds held by the credit institution or investment firm concerned ensure a sound management and coverage of the risks to which the institution or firm is or might be exposed. That supervision is carried out on a consolidated basis in relation to banking groups, and includes financial holding companies and affiliated financial institutions in all jurisdictions.
(3)
In order to address the potentially detrimental effect of poorly designed remuneration structures on the sound management of risk and control of risk-taking behaviour by individuals, the requirements of Directive 2006/48/EC should be supplemented by an express obligation for credit institutions and investment firms to establish and maintain, for categories of staff whose professional activities have a material impact on their risk profile, remuneration policies and practices that are consistent with effective risk management. Those categories of staff should include at least senior management, risk takers, staff engaged in control functions and any employee whose total remuneration, including discretionary pension benefit provisions, takes them into the same remuneration bracket as senior management and risk takers.
(4)
Because excessive and imprudent risk-taking may undermine the financial soundness of credit institutions or investment firms and destabilise the banking system, it is important that the new obligation concerning remuneration policies and practices should be implemented in a consistent manner and should cover all aspects of remuneration including salaries, discretionary pension benefits and any similar benefits. In that context, discretionary pension benefits should mean discretionary payments granted by a credit institution or investment firm to an employee on an individual basis payable by reference to or expectation of retirement and which can be assimilated to variable remuneration. It is therefore appropriate to specify clear principles on sound remuneration to ensure that the structure of remuneration does not encourage excessive risk-taking by individuals or moral hazard and is aligned with the risk appetite, values and long-term interests of the credit institution or investment firm. Remuneration should be aligned with the role of the financial sector as the mechanism through which financial resources are efficiently allocated in the economy. In particular, the principles should provide that the design of variable remunerationpolicies ensures that incentives are aligned with the long-term interests of the credit institution or investment firm and that payment methods strengthen its capital base. Performance-based components of remuneration should also help enhance fairness within the remuneration structures of the credit institution or investment firm. The principles should recognise that credit institutions and investment firms may apply the provisions in different ways according to their size, internal organisation and the nature, scope and complexity of their activities and, in particular, that it may not be proportionate for investment firms referred to in Article 20(2) and (3) of Directive 2006/49/EC to comply with all of the principles. In order to ensure that the design of remuneration policies is integrated in the risk management of the credit institution or investment firm, the management body, in its supervisory function, of each credit institution or investment firm should adopt and periodically review the principles to be applied. In that context, it should be possible, where applicable and in accordance with national company law, for the management body in its supervisory function to be understood as the supervisory board.
(5)
Credit institutions and investment firms that are significant in terms of their size, internal organisation and the nature, the scope and the complexity of their activities should be required to establish a remuneration committee as an integral part of their governance structure and organisation.
(6)
By 1 April 2013, the Commission should review the principles on remuneration policy with particular regard to their efficiency, implementation and enforcement, taking into account international developments including any further proposals from the FSB and the implementation of the FSB principles in other jurisdictions including the link between the design of variable remuneration and excessive risk-taking behaviour.
(7)
Remuneration policy should aim at aligning the personal objectives of staff members with the long-term interests of the credit institution or investment firm concerned. The assessment of the performance-based components of remuneration should be based on longer-term performance and take into account the outstanding risks associated with the performance. The assessment of performance should be set in a multi-year framework of at least three to 5 years, in order to ensure that the assessment process is based on longer term performance and that the actual payment of performance-based components of remuneration is spread over the business cycle of the credit institution or investment firm. To align incentives further, a substantial portion of variable remuneration of all staff members covered by those requirements should consist of shares, share-linked instruments of the credit institution or investment firm, subject to the legal structure of the credit institution or investment firm concerned or, in the case of a non-listed credit institution or investment firm, other equivalent non-cash instruments and, where appropriate, other long-dated financial instruments that adequately reflect the credit quality of the credit institution or investment firm. It should be possible for such instruments to include a capital instrument which, where the institution is subject to severe financial problems, is converted into equity or otherwise written down. In cases where the credit institution concerned does not issue long-dated financial instruments, it should be permitted to issue the substantial portion of variable remuneration in shares and share-linked instruments and other equivalent non-cash instruments. The Member States or their competent authorities should be able to place restrictions on the types and designs of those instruments or prohibit certain instruments, as appropriate.
(8)
To minimise incentives for excessive risk-taking, variable remuneration should constitute a balanced proportion of total remuneration. It is essential that an employee’s fixed salary represents a sufficiently high proportion of his total remuneration to allow the operation of a fully flexible variable remuneration policy, including the possibility to pay no variable remuneration. In order to ensure coherent remuneration practices throughout the sector, it is appropriate to specify certain clear requirements. Guaranteed variable remuneration is not consistent with sound risk management or the pay-for-performance principle and should, as a general rule, be prohibited.
(9)
A substantial portion of the variable remuneration component, such as 40 to 60 %, should be deferred over an appropriate period of time. That portion should increase significantly with the level of seniority or responsibility of the person remunerated. Moreover, a substantial portion of the variable remuneration component should consist of shares, share-linked instruments of the credit institution or investment firm, subject to the legal structure of the credit institution or investment firm concerned or, in the case of a non-listed credit institution or investment firm, other equivalent non-cash instruments and, where appropriate, other long-dated financial instruments that adequately reflect the credit quality of the credit institution or investment firm. In that context, the principle of proportionality is of great importance since it may not always be appropriate to apply those requirements in the context of small credit institutions and investment firms. Taking into account the restrictions that limit the amount of variable remuneration payable in cash and payable upfront, the amount of variable remuneration which can be paid in cash or cash equivalent not subject to deferral should be limited in order to further align the personal objectives of staff with the long-term interest of the credit institution or investment firm.
(10)
Credit institutions and investment firms should ensure that the total variable remuneration does not limit their ability to strengthen their capital base. The extent to which capital needs to be built up should be a function of the current capital position of the credit institution or investment firm. In that context, Member States’ competent authorities should have the power to limit variable remuneration, inter alia, as a percentage of total net revenue when it is inconsistent with the maintenance of a sound capital base.
(11)
Credit institutions and investment firms should require their staff to undertake not to use personal hedging strategies or insurance to undermine the risk alignment effects embedded in their remuneration arrangements.
(12)
Regarding entities that benefit from exceptional government intervention, priority should be given to building up their capital base and providing for recovery of taxpayer assistance. Any variable remuneration payments should reflect those priorities.
(13)
The principles regarding sound remuneration policies set out in the Commission Recommendation of 30 April 2009 on remuneration policies in the financial services sector (7) are consistent with and complement the principles set out in this Directive.
(14)
The provisions on remuneration should be without prejudice to the full exercise of fundamental rights guaranteed by the Treaties, in particular Article 153(5) of the Treaty on the Functioning of the European Union (TFEU), general principles of national contract and labour law, legislation regarding shareholders’ rights and involvement and the general responsibilities of the administrative and supervisory bodies of the institution concerned, as well as the rights, where applicable, of the social partners to conclude and enforce collective agreements, in accordance with national law and customs.
(15)
In order to ensure fast and effective enforcement, the competent authorities should also have the power to impose or apply financial or non-financial penalties or other measures for breach of a requirement under Directive 2006/48/EC, including the requirement to have remuneration policies that are consistent with sound and effective risk management. Those measures and penalties should be effective, proportionate and dissuasive. In order to ensure consistency and a level playing field, the Commission should review the adoption and application by the Member States of such measures and penalties on an aggregate basis with regard to their consistency across the Union.
(16)
In order to ensure effective supervisory oversight of the risks posed by inappropriate remuneration structures, the remuneration polices and practices adopted by credit institutions and investment firms should be included in the scope of supervisory review under Directive 2006/48/EC. In the course of that review, supervisors should assess whether those policies and practices are likely to encourage excessive risk-taking by the staff in question. In addition, CEBS should ensure the existence of guidelines for the assessment of the suitability of the persons who effectively direct the business of a credit institution.
(17)
The Commission Green Paper of 2 June 2010 on corporate governance in financial institutions and remuneration policies identifies a series of failures in corporate governance in credit institutions and investment firms that should be addressed. Among the solutions identified, the Commission refers to the need to strengthen significantly requirements relating to persons who effectively direct the business of the credit institution who should be of sufficiently good repute and have appropriate experience and also be assessed as to their suitability to perform their professional activities. The Green Paper also underlines the need to improve shareholders’ involvement in approving remuneration policies. The European Parliament and the Council note the Commission’s intention, as a follow-up, to make legislative proposals, where appropriate, on those issues.
(18)
In order further to enhance transparency as regards the remuneration practices of credit institutions and investment firms, the competent authorities of Member States should collect information on remuneration to benchmark remuneration trends in accordance with the categories of quantitative information that the credit institutions and investment firms are required to disclose under this Directive. The competent authorities should provide CEBS with that information in order to enable it to conduct similar assessments at Union level.
(19)
In order to promote supervisory convergences in the assessment of remuneration policies and practices, and to facilitate information collection and the consistent implementation of the remuneration principles in the banking sector, CEBS should elaborate guidelines on sound remuneration policies in the banking sector. The Committee of European Securities Regulators should assist in the elaboration of such guidelines to the extent that they also apply to remuneration policies for persons involved in the provision of investment services and carrying out of investment activities by credit institutions and investment firms within the meaning of Directive 2004/39/EC. CEBS should conduct open public consultations regarding the technical standards and analyse the potentially related costs and benefits. The Commission should be able to make legislative proposals entrusting the European supervisory authority dealing with banking matters and, to the extent it is appropriate, the European supervisory authority dealing with markets and securities matters, as established pursuant to the de Larosière process on financial supervision, with the elaboration of draft technical regulatory and implementing standards to facilitate information collection and the consistent implementation of the remuneration principles in the banking sector to be adopted by the Commission.
(20)
Since poorly designed remuneration policies and incentive schemes are capable of increasing to an unacceptable extent the risks to which credit institutions and investment firms are exposed, prompt remedial action and, if necessary, appropriate corrective measures should be taken. Consequently, it is appropriate to ensure that competent authorities have the power to impose qualitative or quantitative measures on the relevant entities that are designed to address problems that have been identified in relation to remuneration policies in the Pillar 2 supervisory review. Qualitative measures available to the competent authorities include requiring the credit institutions and investment firms to reduce the risk inherent in their activities, products or systems, including by introducing changes to their structures of remuneration or freezing the variable parts of remuneration to the extent that they are inconsistent with effective risk management. Quantitative measures include a requirement to hold additional own funds.
(21)
Good governance structures, transparency and disclosure are essential for sound remuneration policies. In order to ensure adequate transparency to the market of their remuneration structures and the associated risk, credit institutions and investments firms should disclose detailed information on their remuneration policies, practices and, for reasons of confidentiality, aggregated amounts for those members of staff whose professional activities have a material impact on the risk profile of the credit institution or investment firm. That information should be made available to all stakeholders (shareholders, employees and the general public). However, that obligation should be without prejudice to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with the regard to the processing of personal data and on the free movement of such data (8).
(22)
In order to guarantee their full effectiveness and in order to avoid any discriminatory effect in their application, the provisions on remuneration laid down in this Directive should be applied to remuneration due on the basis of contracts concluded before the date of their effective implementation in each Member State and awarded or paid after that date. Moreover, in order to safeguard the objectives pursued by this Directive, especially effective risk management, in respect of periods still characterised by a high degree of financial instability, and in order to avoid any risk of circumvention of the provisions on remuneration laid down in this Directive during the period prior to their implementation, it is necessary to apply those provisions to remuneration awarded, but not yet paid, before the date of their effective implementation in each Member State, for services provided in 2010.
(23)
The review of risks to which the credit institution might be exposed should result in effective supervisory measures. It is therefore necessary that further convergence be reached with a view to supporting joint decisions by supervisors and ensuring equal conditions of competition within the Union.
(24)
Credit institutions investing in re-securitisations are required under Directive 2006/48/EC to exercise due diligence also with regard to the underlying securitisations and the non-securitisation exposures ultimately underlying the former. Credit institutions should assess whether exposures in the context of asset-backed commercial paper programmes constitute re-securitisation exposures, including those in the context of programmes which acquire senior tranches of separate pools of whole loans where none of those loans is a securitisation or re-securitisation exposure, and where the first-loss protection for each investment is provided by the seller of the loans. In the latter situation, a pool-specific liquidity facility should generally not be considered a re-securitisation exposure because it represents a tranche of a single asset pool (that is, the applicable pool of whole loans) which contains no securitisation exposures. By contrast, a programme-wide credit enhancement covering only some of the losses above the seller-provided protection across the various pools generally would constitute a tranching of the risk of a pool of multiple assets containing at least one securitisation exposure, and would therefore be a re-securitisation exposure. Nevertheless, if such a programme funds itself entirely with a single class of commercial paper, and if either the programme-wide credit enhancement is not a re-securitisation or the commercial paper is fully supported by the sponsoring credit institution, leaving the commercial paper investor effectively exposed to the default risk of the sponsor instead of the underlying pools or assets, then that commercial paper generally should not be considered a re-securitisation exposure.
(25)
The provisions on prudent valuation in Directive 2006/49/EC should apply to all instruments measured at fair value, whether in the trading book or non-trading book of institutions. It should be clarified that, where the application of prudent valuation would lead to a lower carrying value than actually recognised in the accounting, the absolute value of the difference should be deducted from own funds.
(26)
Institutions should have a choice whether to apply a capital requirement to or deduct from own funds those securitisation positions that receive a 1 250 % risk weight under this Directive, irrespective of whether the positions are in the trading or the non-trading book.
(27)
Capital requirements for settlement risks should also apply to the non-trading book.
(28)
Originator or sponsor institutions should not be able to circumvent the prohibition of implicit support by using their trading books in order to provide such support.
(29)
Without prejudice to the disclosures explicitly required by this Directive, the aim of the disclosure requirements should be to provide market participants with accurate and comprehensive information regarding the risk profile of individual institutions. Institutions should therefore be required to disclose additional information not explicitly listed in this Directive where such disclosure is necessary to meet that aim.
(30)
In order to ensure coherent implementation of Directive 2006/48/EC throughout the Union, the Commission and CEBS set up a working group (Capital Requirements Directive Transposition Group - CRDTG) in 2006, entrusted with the task of discussing and resolving issues related to the implementation of that Directive. According to the CRDTG, certain technical provisions of Directives 2006/48/EC and 2006/49/EC need to be further specified. It is therefore appropriate to specify those provisions.
(31)
Where an external credit assessment for a securitisation position incorporates the effect of credit protection provided by the investing institution itself, the institution should not be able to benefit from the lower risk weight resulting from that protection. This should not lead to the deduction from capital of the securitisation if there are other ways to determine a risk weight in line with the actual risk of the position, not taking into account such credit protection.
(32)
In the field of securitisation, disclosure requirements of institutions should be considerably strengthened. They should in particular also take into account the risks of securitisation positions in the trading book. Furthermore, in order to ensure adequate transparency regarding the nature of an institution’s securitisation activities, disclosures should reflect the extent to which the institution sponsors securitisation special purpose entities and the involvement of certain affiliated entities, since closely related parties may pose on-going risks to the institution concerned.
(33)
Specific risk charges for securitisation positions should be aligned with the capital requirements in the banking book since the latter provide for a more differentiated and risk-sensitive treatment of securitisation positions.
(34)
Given their recent weak performance, the standards for internal models to calculate market risk capital requirements should be strengthened. In particular, their capture of risks should be completed regarding credit risks in the trading book. Furthermore, capital charges should include a component adequate to stress conditions to strengthen capital requirements in view of deteriorating market conditions and in order to reduce the potential for pro-cyclicality. Institutions should also carry out reverse stress tests to examine what scenarios could challenge the viability of the institution unless they can prove that such a test is dispensable. Given the recent particular difficulties of treating securitisation positions using approaches based on internal models, institutions’ ability to model securitisation risks in the trading book should be limited and a standardised capital charge for securitisation positions in the trading book should be required by default.
(35)
This Directive lays down limited exceptions for certain correlation trading activities, in accordance with which an institution may be permitted by its supervisor to calculate a comprehensive risk capital charge subject to strict minimum requirements. In such cases the institution should be required to subject those activities to a capital charge equal to the higher of the capital charge in accordance with that internally developed approach and 8 % of the capital charge for specific risk in accordance with the standardised measurement method. It should not be required to subject those exposures to the incremental risk charge but they should be incorporated into both the value-at-risk measures and the stressed value-at-risk measures.
(36)
Article 152 of Directive 2006/48/EC requires certain credit institutions to provide own funds that are at least equal to certain specified minimum amounts for the three twelve-month periods between 31 December 2006 and 31 December 2009. In the light of the current situation in the banking sector and the extension of the transitional arrangements for minimum capital adopted by the Basel Committee on Banking Supervision, it is appropriate to renew that requirement for a limited period of time until 31 December 2011.
(37)
In order not to discourage credit institutions from moving to the Internal Ratings Based Approach (the IRB Approach) or Advanced Measurement Approaches for calculating the capital requirements during the transitional period due to unreasonable and disproportionate implementation costs, it should be possible to allow credit institutions which have moved to the IRB Approach or Advanced Measurement Approaches since 1 January 2010 and which have previously calculated their capital requirements in accordance with other less sophisticated approaches, subject to supervisory approval, to use the less sophisticated approaches as the basis for the calculation of the transitional floor. The competent authorities should monitor their markets closely and ensure a level playing field within all their markets and market segments and avoid distortions in the internal market.
(38)
In accordance with point 34 of the Interinstitutional Agreement on better law-making (9), Member States are encouraged to draw up, for themselves and in the interest of the Union, their own tables illustrating, as far as possible, the correlation between this Directive and the transposition measures, and to make them public.
(39)
The provisions of this Directive constitute steps in the reform process in response to the financial crisis. In line with the conclusions of the G-20, the FSB and the Basel Committee on Banking Supervision, further reforms may be necessary, including the need to build counter-cyclical buffers, ‘dynamic provisioning’, the rationale underlying the calculation of capital requirements in Directive 2006/48/EC and supplementary measures to risk-based requirements for credit institutions to help constrain the build-up of leverage in the banking system. In order to ensure appropriate democratic oversight of the process, the European Parliament and the Council should be involved in a timely and effective manner.
(40)
The Commission should review the application of Directives 2006/48/EC and 2006/49/EC to ensure that their provisions are applied in an equitable way which does not result in discrimination between credit institutions on the basis of their legal structure or ownership model.
(41)
The Commission should be empowered to adopt delegated acts in accordance with Article 290 TFEU in respect of technical adjustments to Directive 2006/48/EC to clarify definitions to ensure uniform application of that Directive or to take account of developments on financial markets; to align terminology on, and frame definitions in accordance with, subsequent relevant acts; to expand the content or adapt the terminology of the list of activities subject to mutual recognition under that Directive to take account of developments on financial markets; to adjust the areas in which the competent authorities are required to exchange information; to adjust the provisions of that Directive on own funds to reflect developments in accounting standards or Union legislation, or with regard to the convergence of supervisory practices; to expand the lists of exposure classes for the purposes of the Standardised Approach or the IRB Approach to take account of developments on financial markets; to adjust certain amounts relevant to those exposure classes to take into account the effects of inflation; to adjust the list and classification of off-balance sheet items; and to adjust specific provisions and technical criteria on the treatment of counterparty credit risk, the organisation and treatment of risk, the Standardised Approach and the IRB Approach, credit risk mitigation, securitisation, operational risk, review and evaluation by the competent authorities and disclosure in order to take account of developments on financial markets or in accounting standards or Union legislation, or with regard to the convergence of supervisory practices. The Commission should also be empowered to adopt delegated acts in accordance withArticle 290 TFEU in respect of measures to specify the size of sudden and unexpected changes in interest rates relevant for the purposes of the review and evaluation by the competent authorities under Directive 2006/48/EC of interest rate risk arising from non-trading activities; to prescribe a temporary reduction in the minimum level of own funds or risk weights specified under that Directive in order to take account of specific circumstances; to clarify the exemption of certain exposures from the application of provisions of that Directive on large exposures; and to adjust the criteria for the assessment by supervisors under that Directive of the suitability of a proposed acquirer for a credit institution and the financial soundness of any proposed acquisition.
(42)
The Commission should also be empowered to adopt delegated acts in accordance with Article 290 TFEU in respect of technical adjustments to Directive 2006/49/EC to clarify definitions to ensure uniform application of that Directive or to take account of developments on financial markets; to adjust the amounts of initial capital prescribed by certain provisions of that Directive and specific amounts relevant to the calculation of capital requirements for the trading book to take account of developments in the economic and monetary field; to adjust the categories of investment firms eligible for certain derogations to required minimum levels of own funds to take account of developments on financial markets; to clarify the requirement that investment firms hold own funds equivalent to one quarter of their fixed overheads of the preceding year to ensure uniform application of that Directive; to align terminology and definitions with subsequent relevant acts; to adjust technical provisions of that Directive on the calculation of capital requirements for various classes of risk and large exposures, on the use of internal models to calculate capital requirements and on trading in order to take account of developments on financial markets or in risk measurement or accounting standards, or in Union legislation, or which have regard to the convergence of supervisory practices; and to take account of the outcome of the review of various matters relating to the scope of Directive 2004/39/EC.
(43)
The European Parliament and the Council should have 3 months from the date of notification to object to a delegated act. At the initiative of the European Parliament or the Council, it should also be possible to prolong that period by 3 months. It should be possible for the European Parliament and the Council to inform the other institutions of their intention not to raise objections. Such early approval of delegated acts is particularly appropriate when deadlines need to be met, for example where there are timetables in the basic act for the Commission to adopt delegated acts.
(44)
In Declaration 39 on Article 290 of the Treaty on the Functioning of the European Union, annexed to the Final Act of the Intergovernmental Conference which adopted the Treaty of Lisbon, signed on 13 December 2007, the Conference took note of the Commission’s intention to continue to consult experts appointed by the Member States in the preparation of draft delegated acts in the financial services area, in accordance with its established practice.
(45)
Since the objectives of this Directive, namely to require credit institutions and investment firms to establish remuneration policies that are consistent with effective risk management and to adjust certain capital requirements, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.
(46)
Directives 2006/48/EC and 2006/49/EC should therefore be amended accordingly,
HAVE ADOPTED THIS DIRECTIVE:
Article 1
Amendments to Directive 2006/48/EC
Directive 2006/48/EC is hereby amended as follows:
1.
Article 4 is amended as follows:
(a)
the following points are inserted:
‘(40a)
“re-securitisation” means a securitisation where the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation position;
(40b)
“re-securitisation position” means an exposure to a re-securitisation;’;
(b)
the following point is added:
‘(49)
“discretionary pension benefits” means enhanced pension benefits granted on a discretionary basis by a credit institution to an employee as part of that employee’s variable remuneration package, which do not include accrued benefits granted to an employee under the terms of the company pension scheme.’.
2.
In Article 11(1), the following subparagraph is added:
‘The Committee of European Banking Supervisors shall ensure the existence of guidelines for the assessment of the suitability of the persons who effectively direct the business of the credit institution.’.
3.
Article 22 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. Home Member State competent authorities shall require that every credit institution have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management.’;
(b)
the following paragraphs are added:
‘3. Home Member State competent authorities shall use the information collected in accordance with the criteria for disclosure established in point 15(f) of part 2 of Annex XII to benchmark remuneration trends and practices. The competent authorities shall provide the Committee of European Banking Supervisors with that information.
4. The Committee of European Banking Supervisors shall ensure the existence of guidelines on sound remuneration policies which comply with the principles set out in points 23 and 24 of Annex V. The guidelines shall take into account the principles on sound remuneration policies set out in the Commission Recommendation of 30 April 2009 on remuneration policies in the financial services sector (10).
The Committee of European Banking Supervisors shall, inter alia, ensure the existence of guidelines to:
(a)
set specific criteria to determine the appropriate ratios between the fixed and the variable component of the total remuneration within the meaning of point 23(l) of Annex V;
(b)
specify instruments that can be eligible as instruments within the meaning of point 23(o)(ii) of Annex V that adequately reflect the credit quality of credit institutions within the meaning of point 23(o) of that Annex.
The Committee of European Securities Regulators shall cooperate closely with the Committee of European Banking Supervisors in ensuring the existence of guidelines on remuneration policies for categories of staff involved in the provision of investment services and activities within the meaning of point 2 of Article 4(1) of Directive 2004/39/EC.
The Committee of European Banking Supervisors shall use the information received from the competent authorities in accordance with paragraph 3 to benchmark remuneration trends and practices at the Union level.
5. Home Member State competent authorities shall collect information on the number of individuals per credit institution in pay brackets of at least EUR 1 million including the business area involved and the main elements of salary, bonus, long-term award and pension contribution. That information shall be forwarded to the Committee of European Banking Supervisors, which shall disclose it on an aggregate home Member State basis in a common reporting format. The Committee of European Banking Supervisors may elaborate guidelines to facilitate the implementation of this paragraph and ensure the consistency of the information collected.
4.
In Article 54, the following paragraph is added:
‘Member States shall ensure that, for the purposes of the first paragraph, their respective competent authorities have the power to impose or apply financial and non-financial penalties or other measures. Those penalties or measures shall be effective, proportionate and dissuasive.’.
5.
In the first paragraph of Article 57, point (r) is replaced by the following:
‘(r)
the exposure amount of securitisation positions which receive a risk weight of 1 250 % under this Directive and the exposure amount of securitisation positions in the trading book that would receive a 1 250 % risk weight if they were in the same credit institutions non-trading book.’.
6.
In Article 64, the following paragraph is added:
‘5. Credit institutions shall apply the requirements of Part B of Annex VII to Directive 2006/49/EC to all their assets measured at fair value when calculating the amount of own funds and shall deduct from the total of the items (a) to (ca) minus (i) to (k) in Article 57 the amount of any additional value adjustments necessary. The Committee of European Banking Supervisors shall establish guidelines regarding the details of the application of this provision.’.
7.
In Article 66, paragraph 2 is replaced by the following:
‘2. Half of the total of the items in Article 57(l) to (r) shall be deducted from the total of the items in points (a) to (ca) minus (i) to (k) of that Article, and half from the total of the items in points (d) to (h) of that Article, after application of the limits laid down in paragraph 1 of this Article. To the extent that half of the total of the items in points (l) to (r) exceeds the total of the items in Article 57(d) to (h), the excess shall be deducted from the total of the items in points (a) to (ca) minus (i) to (k) of that Article.
Items in Article 57(r) shall not be deducted if they have been included for the purposes of Article 75 in the calculation of risk-weighted exposure amounts as specified in this Directive or in the calculation of capital requirements as specified in Annex I or V to Directive 2006/49/EC.’.
8.
In Article 75, points (b) and (c) are replaced by the following:
‘(b)
in respect of their trading-book business, for position risk and counter-party risk and, in so far as it is authorised that the limits laid down in Articles 111 to 117 are exceeded, for large exposures exceeding such limits, the capital requirements determined in accordance with Article 18 and Articles 28 to 32 of Directive 2006/49/EC;
(c)
in respect of all their business activities, for foreign exchange risk, for settlement risk and for commodities risk, the capital requirements determined in accordance with Article 18 of Directive 2006/49/EC;’.
9.
In Article 101, paragraph 1 is replaced by the following:
‘1. A sponsor credit institution, or an originator credit institution which in respect of a securitisation has made use of Article 95 in the calculation of risk-weighted exposure amounts or has sold instruments from its trading book to a securitisation special purpose entity to the effect that it is no longer required to hold own funds for the risks of those instruments shall not, with a view to reducing potential or actual losses to investors, provide support to the securitisation beyond its contractual obligations.’.
10.
Article 136 is amended as follows:
(a)
in the second subparagraph of paragraph 1, the following points are added:
‘(f)
requiring credit institutions to limit variable remuneration as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base;
(g)
requiring credit institutions to use net profits to strengthen the capital base.’;
(b)
in paragraph 2, the following subparagraph is added:
‘For the purposes of determining the appropriate level of own funds on the basis of the review and evaluation carried out in accordance with Article 124, the competent authorities shall assess whether any imposition of a specific own funds requirement in excess of the minimum level is required to capture risks to which a credit institution is or might be exposed, taking into account the following:
(a)
the quantitative and qualitative aspects of the credit institutions’ assessment process referred to in Article 123;
(b)
the credit institutions’ arrangements, processes and mechanisms referred to in Article 22;
(c)
the outcome of the review and evaluation carried out in accordance with Article 124.’.
11.
In Article 145, paragraph 3 is replaced by the following:
‘3. Credit institutions shall adopt a formal policy to comply with the disclosure requirements laid down in paragraphs 1 and 2, and have policies for assessing the appropriateness of their disclosures, including their verification and frequency. Credit institutions shall also have policies for assessing whether their disclosures convey their risk profile comprehensively to market participants.
Where those disclosures do not convey the risk profile comprehensively to market participants, credit institutions shall publicly disclose the information necessary in addition to that required in accordance with paragraph 1. However, they shall only be required to disclose information which is material and not proprietary or confidential in accordance with the technical criteria set out in Part 1 of Annex XII.’.
12.
The title of Title VI is replaced by the following:
‘DELEGATED ACTS AND POWERS OF EXECUTION’.
13.
Article 150 is amended as follows:
(a)
paragraph 1 is replaced by the following:
‘1. Without prejudice, as regards own funds, to the proposal that the Commission is to submit pursuant to Article 62, the technical adjustments in the following areas shall be adopted by means of delegated acts in accordance with Article 151a, and subject to the conditions of Articles 151b and 151c:
(a)
clarification of the definitions to ensure uniform application of this Directive;
(b)
clarification of the definitions in order to take account, in the application of this Directive, of developments on financial markets;
(c)
the alignment of terminology on, and the framing of definitions in accordance with, subsequent acts on credit institutions and related matters;
(d)
expansion of the content of the list referred to in Articles 23 and 24 and set out in Annex I or adaptation of the terminology used in that list to take account of developments on financial markets;
(e)
the areas in which the competent authorities shall exchange information as listed in Article 42;
(f)
technical adjustments in Articles 56 to 67 and in Article 74 as a result of developments in accounting standards or requirements which take account of Union legislation or with regard to the convergence of supervisory practices;
(g)
amendment of the list of exposure classes in Articles 79 and 86 in order to take account of developments on financial markets;
(h)
the amount specified in Article 79(2)(c), Article 86(4)(a), Annex VII, Part 1, point 5 and Annex VII, Part 2, point 15, to take into account the effects of inflation;
(i)
the list and classification of off-balance sheet items in Annexes II and IV;
(j)
adjustment of the provisions in Annexes III and V to XII in order to take account of developments on financial markets (in particular new financial products) or in accounting standards or requirements which take account of Union legislation, or with regard to the convergence of supervisory practices.
1a. The following measures shall be adopted in accordance with the regulatory procedure referred to in Article 151(2a):
(a)
technical adjustments to the list in Article 2;
(b)
alteration of the amount of initial capital prescribed in Article 9 to take account of developments in the economic and monetary field.’;
(b)
paragraph 2 is amended as follows:
(i)
in the first subparagraph, the introductory part is replaced by the following:
‘The Commission may adopt the following measures:’;
(ii)
the second subparagraph is replaced by the following:
‘The measures referred to in points (a), (b), (c) and (f) of the first subparagraph shall be adopted by means of delegated acts in accordance with Article 151a, and subject to the conditions of Articles 151b and 151c. The measures referred to in points (d) and (e) of the first subparagraph shall be adopted in accordance with the regulatory procedure referred to in Article 151(2a).’.
14.
In Article 151, paragraphs 2 and 3 are deleted.
15.
The following articles are inserted:
‘Article 151a
Exercise of the delegation
1. The power to adopt delegated acts referred to in Article 150(1) and the first sentence of the second subparagraph of Article 150(2) shall be conferred on the Commission for a period of 4 years from 15 December 2010. The Commission shall draw up a report in respect of the delegated power at the latest 6 months before the end of the four-year period. The delegation of power shall be automatically extended for periods of an identical duration, unless the European Parliament or the Council revokes it in accordance with Article 151b.
2. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council.
3. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in Articles 151b and 151c.
Article 151b
Revocation of the delegation
1. The delegation of power referred to in Article 150(1) and the first sentence of the second subparagraph of Article 150(2) may be revoked at any time by the European Parliament or by the Council.
2. The institution which has commenced an internal procedure for deciding whether to revoke a delegation of power shall endeavour to inform the other institution and the Commission within a reasonable time before the final decision is taken, indicating the delegated power which could be subject to revocation.
3. The decision of revocation shall put an end to the delegation of the power specified in that decision. It shall take effect immediately or at a later date specified therein. It shall not affect the validity of the delegated acts already in force. It shall be published in the Official Journal of the European Union.
Article 151c
Objections to delegated acts
1. The European Parliament or the Council may object to a delegated act within a period of 3 months from the date of notification. At the initiative of the European Parliament or the Council that period shall be extended by 3 months.
2. If, on the expiry of the period referred to in paragraph 1, neither the European Parliament nor the Council has objected to the delegated act, it shall be published in the Official Journal of the European Union and shall enter into force on the date stated therein. The delegated act may be published in the Official Journal of the European Union and enter into force before the expiry of that period if the European Parliament and the Council have both informed the Commission of their intention not to raise objections.
3. If either the European Parliament or the Council objects to the delegated act within the period referred to in paragraph 1, it shall not enter into force. In accordance with Article 296 TFEU, the institution which objects shall state the reasons for objecting to the delegated act.’.
16.
In Article 152, the following paragraphs are inserted:
‘5a. Credit institutions calculating risk-weighted exposure amounts in accordance with Articles 84 to 89 shall until 31 December 2011 provide own funds which are at all times more than or equal to the amount indicated in paragraph 5c or paragraph 5d if applicable.
5b. Credit institutions using the Advanced Measurement Approaches as specified in Article 105 for the calculation of their capital requirements for operational risk shall until 31 December 2011 provide own funds which are at all times more than or equal to the amount indicated in paragraph 5c or 5d if applicable.
5c. The amount referred to in paragraphs 5a and 5b shall be 80 % of the total minimum amount of own funds that the credit institutions would be required to hold under Article 4 of Directive 93/6/EEC and Directive 2000/12/EC, as applicable prior to 1 January 2007.
5d. Subject to the approval of the competent authorities, for credit institutions referred to in paragraph 5e, the amount referred to in paragraphs 5a and 5b may amount to up to 80 % of the total minimum amount of own funds that those credit institutions would be required to hold under any of Articles 78 to 83, 103 or 104 and Directive 2006/49/EC, as applicable prior to 1 January 2011.
5e. A credit institution may apply paragraph 5d only if it started to use the IRB Approach or the Advanced Measurement Approaches for the calculation of its capital requirements on or after 1 January 2010.’.
17.
Article 154(5) is replaced by the following:
‘5. Until 31 December 2012, the exposure weighted average LGD for all retail exposures secured by residential properties and not benefiting from guarantees from central governments shall not be lower than 10 %.’.
18.
In Article 156, the following paragraphs are inserted after the third paragraph:
‘By 1 April 2013 the Commission shall review and report on the provisions on remuneration, including those set out in Annexes V and XII, with particular regard to their efficiency, implementation and enforcement, taking into account international developments. That review shall identify any lacunae arising from the application of the principle of proportionality to those provisions. The Commission shall submit its report to the European Parliament and the Council together with any appropriate proposals.
In order to ensure consistency and a level playing field, the Commission shall review the implementation of Article 54 with regard to the consistency of the penalties and other measures imposed and applied across the Union and, if appropriate, shall put forward proposals.
The Commission’s periodic review of the application of this Directive shall ensure that the way it is applied does not result in manifest discrimination between credit institutions on the basis of their legal structure or ownership model.
In order to ensure consistency in the prudential approach to capital, the Commission shall review the relevance of the reference to instruments within the meaning of Article 66(1a)(a) in point 23(o)(ii) of Annex V as soon as it takes an initiative to review the definition of capital instruments as provided for in Articles 56 to 67.’.
19.
The following article is inserted:
‘Article 156a
By 31 December 2011 the Commission shall review and report on the desirability of changes to align Annex IX of this Directive taking into consideration international agreements regarding the capital requirements of credit institutions for securitisation positions. The Commission shall submit that report to the European Parliament and the Council together with any appropriate legislative proposals.’.
20.
The Annexes are amended as set out in Annex I to this Directive.
Article 2
Amendments to Directive 2006/49/EC
Directive 2006/49/EC is hereby amended as follows:
1.
In the first subparagraph of Article 3(1), the following point is added:
‘(t)
“securitisation position” and “re-securitisation position” mean, respectively, securitisation position and re-securitisation position as defined in Directive 2006/48/EC.’.
2.
In the first subparagraph of Article 17(1), the introductory part is replaced by the following:
‘Where an institution calculates risk-weighted exposure amounts for the purposes of Annex II to this Directive in accordance with Articles 84 to 89 of Directive 2006/48/EC, the following shall apply for the purposes of the calculation provided for in point 36 of Part 1 of Annex VII to Directive 2006/48/EC:’.
3.
In Article 18(1), point (a) is replaced by the following:
‘(a)
the capital requirements, calculated in accordance with the methods and options laid down in Articles 28 to 32 and Annexes I, II, and VI and, as appropriate, Annex V, for their trading book business, and points 1 to 4 of Annex II for their non-trading book business;’.
4.
The title of Section 2 of Chapter VIII is replaced by the following:
‘Delegated acts and powers of execution’.
5.
Article 41(2) is replaced by the following:
‘2. The measures referred to in paragraph 1 shall be adopted by means of delegated acts in accordance with Article 42a, and subject to the conditions of Articles 42b and 42c.’.
6.
In Article 42, paragraph 2 is deleted.
7.
The following articles are inserted:
‘Article 42a
Exercise of the delegation
1. The power to adopt delegated acts referred to in Article 41 shall be conferred on the Commission for a period of 4 years from 15 December 2010. The Commission shall draw up a report in respect of the delegated power at the latest 6 months before the end of the four-year period. The delegation of power shall be automatically extended for periods of an identical duration, unless the European Parliament or the Council revokes it in accordance with Article 42b.
2. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council.
3. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in Articles 42b and 42c.
Article 42b
Revocation of the delegation
1. The delegation of power referred to in Article 41 may be revoked at any time by the European Parliament or by the Council.
2. The institution which has commenced an internal procedure for deciding whether to revoke a delegation of power shall endeavour to inform the other institution and the Commission within a reasonable time before the final decision is taken, indicating the delegated power which could be subject to revocation.
3. The decision of revocation shall put an end to the delegation of the power specified in that decision. It shall take effect immediately or at a later date specified therein. It shall not affect the validity of the delegated acts already in force. It shall be published in the Official Journal of the European Union.
Article 42c
Objections to delegated acts
1. The European Parliament or the Council may object to a delegated act within a period of 3 months from the date of notification. At the initiative of the European Parliament or the Council that period shall be extended by 3 months.
2. If, on the expiry of the period referred to in paragraph 1, neither the European Parliament nor the Council has objected to the delegated act, it shall be published in the Official Journal of the European Union and shall enter into force on the date stated therein. The delegated act may be published in the Official Journal of the European Union and enter into force before the expiry of that period if the European Parliament and the Council have both informed the Commission of their intention not to raise objections.
3. If either the European Parliament or the Council objects to the delegated act within the period referred to in paragraph 1, it shall not enter into force. In accordance with Article 296 of the Treaty on the Functioning of the European Union, the institution which objects shall state the reasons for objecting to the delegated act.’.
8.
Article 47 is replaced by the following:
‘Until 30 December 2011 or any earlier date specified by the competent authorities on a case-by-case basis, institutions that have received specific risk-model recognition prior to 1 January 2007 in accordance with point 1 of Annex V may, for that existing recognition, apply points 4 and 8 of Annex VIII to Directive 93/6/EEC as those points stood prior to 1 January 2007.’.
9.
The Annexes are amended as set out in Annex II to this Directive.
Article 3
Transposition
1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with:
(a)
points 3, 4, 16 and 17 of Article 1 and points 1, 2(c), 3 and 5(b)(iii) of Annex I, by 1 January 2011; and
(b)
the provisions of this Directive other than those specified in point (a), by 31 December 2011.
When Member States adopt the measures referred to in this paragraph, they shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States.
2. The laws, regulations and administrative provisions necessary to comply with point 1 of Annex I shall require credit institutions to apply the principles laid down therein to:
(i)
remuneration due on basis of contracts concluded before the effective date of implementation in each Member State and awarded or paid after that date; and
(ii)
for services provided in 2010, remuneration awarded, but not yet paid, before the date of effective implementation in each Member State.
3. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.
Article 4
Report
With regard to the international nature of the Basel framework and the risks associated with a non- simultaneous implementation of the changes to that framework in major jurisdictions, the Commission shall report to the European Parliament and the Council by 31 December 2010 on progress made towards the international implementation of the changes to the capital adequacy framework, together with any appropriate proposals.
Article 5
Entry into force
This Directive shall enter into force on the day following its publication in the Official Journal of the European Union.
Article 6
Addressees
This Directive is addressed to the Member States.
Done at Strasbourg, 24 November 2010.