EIOPA published an opinion on the supervision of remuneration principles in the insurance and reinsurance sectors in EU. The opinion addresses how to ensure consistent practices in application of the remuneration principles included in Solvency II and offers guidance to national supervisory authorities on how to challenge the application of certain principles. EIOPA also published a feedback statement on the comments received on the opinion. EIOPA will start monitoring the application of this opinion by the supervisory authorities two years after its publication. Supervisory authorities should collect qualitative and quantitative data, enabling them to perform supervisory review of the remuneration principles in accordance with this opinion. Instruments for data collection might be either the regular supervisory reporting or a specific request.
EIOPA delivered this opinion on the basis of Solvency II Directive and the Commission Delegated Regulation in line with the relevant provisions of Directive 2017/828/EC on remuneration. While the Solvency II framework provides for provisions of remuneration for sound and prudent management, the remuneration principles defined in the Delegated Regulation are high-level and leave considerable discretion to undertakings and supervisory authorities. To promote a proportionate approach, the opinion focuses on the staff members identified as potential higher profile risk-takers, including those whose annual variable remuneration exceeds EUR 50,000 and represents more than one-third of the total annual remuneration. These include administrative, management, and supervisory body members, other executive directors who effectively run the undertaking, key function holders as defined in the EIOPA Guidelines on System of Governance, and categories of staff whose professional activities have a material impact on the undertakings' risk profile. Among others, the opinion states the following:
- Where remuneration schemes have fixed and variable components, these components should be in such a proportion that the employees do not become overly dependent on the variable components.
- When assessing the adequacy of the deferral period with regard to the nature of the undertakings’ business, its risks, and the activities of the employees in question, supervisory authorities should keep in mind that undertakings have different deferral periods depending on the risks they enter into and that deferral period may or may not vary depending on the categories of staff.
- Where variable remuneration is performance-related, the total amount of variable remuneration has to be based on a combination of the assessment of the individual’s performance, the performance of the business unit concerned, and the overall result of the undertaking or group to which the undertaking belongs.
- Financial and non-financial criteria should be appropriately balanced. For instance, where the criteria is 80% financial and 20% non-financial, supervisory authorities may come to the conclusion that the assessment framework is not appropriately balanced.
- For the supervisory dialog with undertakings, supervisory authorities should consider, as part of the term downward adjustment, all kind of adjustments—for example, malus clawback and in-year adjustments.
- The supervisory assessment of the undertakings’ remuneration policies should cover the policy for the possible use of termination payments, which should contain guidance of the maximum payment or the criteria for determining the amount of the payment.
For members of the administrative, management, and supervisory body and the most highly paid employees of global systemically important undertakings, besides the guidance provided in this opinion, supervisory authorities should take into account the FSB Principles and Standards for sound compensation practices if these principles and standards apply in the respective jurisdiction. The benchmarks or thresholds included in this opinion should be considered for supervisory dialog and not as hard targets for the practical implementation of the remuneration principles. These indicative benchmarks or thresholds do not in any way restrict the supervisory authorities from having stricter practices—that is, lower benchmarks or thresholds—to trigger a supervisory dialog with undertakings if it is deemed appropriate based on a risk-based approach. In this context, supervisory authorities may also adopt a proportionate and more flexible approach in the supervision of the remuneration principles when undertakings are categorized as low risk, including the design of the remuneration policy.
Keywords: Europe, EU, Insurance, Solvency II, Remuneration Principles, Reporting, FSB, EIOPA
Previous ArticleECB Announces Package of Temporary Collateral Easing Measures
Next ArticleFCA Publishes Business Plan for 2020-21
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.
ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.
ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.
The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.
OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.
EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.