EBA Issues Guides on Governance and Remuneration for Investment Firms
The European Banking Authority (EBA) published the revised guidelines on internal governance and on sound remuneration policies for investment firms under the Investment Firms Directive (IFD). The final guidelines provide further details on how certain provisions under IFD apply to class 2 investment firms. All investment firms must also comply with the governance requirements under the Markets in Financial Instruments Directive (MiFID). The guidelines have been developed in cooperation with the European Securities and Markets Authority (ESMA) and will apply from April 30, 2022.
The revised guidelines on internal governance provide further details on how the IFD governance provisions should be applied by Class 2 investment firms, specifying the tasks, responsibilities and organization of the management body, and the organization of investment firms; this includes the need to create transparent structures that allow for supervision of all their activities. The guidelines also specify requirements aimed at ensuring the sound management of risks across all three lines of defense and, in particular, set out detailed requirements for the second line of defense (the compliance function and the independent risk management where applicable) and, the third line of defense (the internal audit function), where applicable. The IFD contains specific governance requirements for investment firms in parallel to and consistently with the ones already applicable under the Capital Requirements Directive (CRD). These guidelines apply on an individual and consolidated basis within the scope of application set out in accordance with Article 25 of Directive (EU) 2019/2034.
The revised guidelines on sound remuneration policies further detail how the provisions under IFD on remuneration policies and variable remuneration of identified staff should be applied by class 2 investment firms. The guidelines are as far as possible consistent with the existing guidelines under the Capital Requirements Directive (CRD). Relevant differences between IFD and CRD (for example, the absence of a bonus cap and differences in instruments and the length of deferral periods) have been taken into account. All aspects of the remuneration policy must be gender-neutral in accordance with IFD remuneration requirements. Institutions should, therefore, comply with the principle of equal pay for equal work or equal value of work. The provisions on anti-discrimination and equal opportunities have been retained as they are important to foster diversity in the longer term and to reduce the gender pay gap over time. Investment firms should implement any adjustments of their remuneration policies by April 30, 2022. Where shareholder approvals are required for such revisions, approvals should be requested before June 30, 2022. The remuneration policy should be applied in line with these guidelines for the performance year starting after December 31, 2021.
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Keywords: Europe, EU, Banking, Investment Firms, IFD, CRD, Remuneration, Governance, MIFID, Guidance, ESMA, EBA
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