New CBFA regulation dealing with the remuneration policies in the financial sector

The Banking, Finance and Insurance Commission (CBFA) has published a new regulation relating to the remuneration policies in financial institutions.

This regulation implements the CEBS guidelines on remuneration policies and practices aimed at facilitating the implementation of European Directive 2010/76/EU (CRD III). This regulation applies to remuneration policies implemented in credit institutions, investment firms, liquidation bodies, and similar entities.

The primary objective of the text is to ensure the alignment of personal objectives of workers whose the function has a significant impact on the risk profile of the institution with the long-term collective objectives of the institution concerned, notably through an evaluation of the performance realized in a multi-annual framework.

As regards remuneration, the regulation more specifically sets out the respect of an appropriate balance of fixed and variable components, without however setting the ratio, which must be determined by each institution concerned. At least 50% of the variable component of the remuneration must be instruments related to capital or shares of the institution concerned with these instruments, which must be the object of an appropriate retention policy.

Finally, the payment of at least 40% (or even 60% in some cases) of the variable component of the remuneration must be deferred for a period of at least three to five years, depending on the nature of the risks of the company and the activities of the worker concerned. The one period of retention imposed in connection with the financial instruments is not sufficient to fulfill this obligation of deferred payment.

The principles provided for in the regulation apply to all bonuses paid from 1 January 2011, even when they relate to services rendered before such date.