Employment and Incentives - Financial Regulation

Implementation of CRD V into Luxembourg law

CRD V was implemented into Luxembourg legal system by a law dated 20 May 2021, which amends the Law on the Financial Sector dated 5 April 1993 (‘LSF’). CSSF subsequently published a statement on 18 June 2021 summarizing the main content of the amendments. 

As far as remuneration is concerned, you will find below the key changes deriving from CRD V and the amended LSF. 

Timing

The new rules apply to performance year starting on or after 1 January 2021 (despite the fact that the law was only published end of May 2021, nothing in the law provides for an application only as of 2022. CSSF has not commented on this either at this stage).

Group of companies 

The rules on remuneration policies, variable remuneration and remuneration committee do not apply to:

  • subsidiary undertakings established in the European Union where they are subject to specific remuneration requirements in accordance with other European Union legal acts; 
  • subsidiary undertakings established in a third country where they would be subject to specific remuneration requirements in accordance with other European Union legal acts if they were established in the European Union.

However, the above rules apply on an individual basis to staff members of subsidiaries where:

  • the subsidiary is either an asset management company, or an undertaking that provides the investment services and activities listed in points (2), (3), (4), (6) and (7) of Section A of Annex I to Directive 2014/65/EU; and 
  • those members of staff have been mandated to perform professional activities that have a direct material impact on the risk profile or the business of the CRR institutions within the group as defined in point (138) of Article 4(1) of Regulation (EU) No 575/2013.

Proportionality

The principle applies to non-significant institutions with average total assets not exceeding EUR 5 billion over preceding four years.

By way of derogation, a threshold at EUR 15 billion can apply if certain criteria are met.

Covered employees

Remuneration rules apply to categories of staff whose professional activities have a material impact on the institution's risk profile shall, at least, include: 

  • all members of the management body and authorised management; 
  • staff members with managerial responsibility over the institution's control functions or material business units; 
  • staff members entitled to significant remuneration in the preceding financial year, provided that the following conditions are met: 
    • the staff member's remuneration is equal to or greater than EUR 500,000 and equal to or greater than the average remuneration awarded to the members of the institution's management body and authorised management referred to in letter (a); 
    • the staff member performs the professional activity within a material business unit and the activity is of a kind that has a significant impact on the relevant business unit's risk profile.” 

Individual de minimis exemption

The same principle also applies to a staff member whose annual variable remuneration does not exceed EUR 50,000 and does not represent more than one third of the staff member's total annual remuneration.

Ratio between fixed and variable pay

Ratio between both shall be balanced and appropriate and in any case the variable pay shall not exceed 100% of the fixed pay.

Deferral

Deferral period is now from 4 to 5 years.

Gender

Remuneration policies and practices shall be gender neutral.

In summary, what actions to be taken?

  • Assess whether remuneration requirements apply to subsidiaries on a individual or consolidated basis;
  • Identify your material risk takers;
  • Assess whether any exemption rules apply;
  • Deferral shall be at least 4 or 5 years (for the management body and the authorised management.