New Regulation on Sound Remuneration Policies in Financial Institutions

The Royal Decree of 22 February 2011 (Koninklijk Besluit van 22 februari 2011 tot goedkeuring van het reglement van de Commissie voor het Bank-, Financie- en Assurantiewezen van 8 februari 2011 aangaande het beloningsbeleid van financiële instellingen/Arrêté royal du 22 février 2011 portant approbation du règlement de la Commission bancaire, financière et des Assurances du 8 février 2011 concernant la politique de remuneration des établissements financiers) approved the regulation of the Banking, Finance and Insurance Commission of 8 February 2011 on sound remuneration policies in financial institutions (the "Regulation"). The Regulation transposes Directive 2010/76/EU 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.

Scope of Application

The Regulation applies to credit institutions, investments firms, and clearing and settlement institutions. The remuneration policy covers all aspects of remuneration including salaries, variable remuneration, discretionary pension benefits and any similar benefits. Furthermore, the remuneration policy applies to the members of staff whose professional activities have a material impact on the risk profile of the institution or firm.

Principles when Establishing and Applying Remuneration Policy

The Regulation provides for a set of twenty principles governing the remuneration policy. The most important principles are as follows:

  • the remuneration policy should promote sound and effective risk management rather than encouraging risk-taking;
  • guaranteed variable remuneration should remain exceptional and should only apply to new staff during the first year of employment;
  • the fixed and variable components of total remuneration should be appropriately balanced;
  • at least 50% of any variable remuneration should consist of an appropriate balance of shares or other instruments;
  • at least 40% of the variable remuneration component should be deferred over a period which is no less than three to five years;
  • the variable remuneration should be paid or vested only if it is sustainable according to the financial situation of the institution;
  • staff members should not use hedging strategies to undermine the risk alignment effects embedded in their remuneration arrangements; and
  • severance payments should reflect performance achieved over time rather than rewarding failure.

Furthermore, the Regulation provides for transparency and disclosure obligations relating to the remuneration policy.

Entry into Force

The Regulation requires that the new principles be applied to services provided in 2010, in the case of: (i) remuneration due on the basis of contracts concluded before 1 January 2011 and awarded or paid after that date; and (ii) remuneration awarded, but not yet paid, before 1 January 2011.

Entry into Force of New "Twin-Peaks" Supervisory Architecture for Financial Sector

Royal Decree of 3 March 2011

On 1 April 2011, the new "twin-peaks" model supervisory architecture for the financial sector will come into effect. The Royal Decree of 3 March 2011 on the evolution of the supervisory architecture for the financial sector (Koninklijk Besluit van 3 maart 2011 betreffende de evolutie van de toezichtsarchitectuur voor de financiële sector/Arrêté royal du 3 mars 2011 mettant en oeuvre l'évolution des structures de contrôle du secteur financier, the "Royal Decree") implements the Law of 2 July 2010 adapting the existing law on the supervision of the financial sector and the financial institutions (Wet van 2 juli 2010 tot wijziging van de Wet van 2 augustus 2002 betreffende het toezicht op de financiële sector en de financiële diensten en van de Wet van 22 februari 1998 tot vaststelling van het organiek statuut van de Nationale Bank van België, en houdende diverse bepalingen/La loi du 2 juillet 2010 modifiant la loi du 2 août 2002 relative à la surveillance du secteur financier et aux services financiers, ainsi que la loi du 22 février 1998 fixant le statut organique de la Banque Nationale de Belgique, et portant des dispositions diverses, the "Law of 2 July 2010"; See, this Newsletter, Volume 2010, No 11).

The New "Twin-Peaks" Model Supervision

The principal features of the new "twin-peaks" model supervisory architecture are as follows:

  • While the supervision of financial institutions used to be the competence of the Belgian Banking, Finance and Insurance Commission (Commissie voor Bank-, Financie- en Assurantiewezen/Commission Bancaire Financière et des Assurances, the "BFIC"), it will now fall under the jurisdiction of the Belgian National Bank (Nationale Bank van België/Banque Nationale de Belgique, the "BNB"). As a result, the BNB becomes responsible for the micro- and macro-economical stability of the financial system.
  • For its part, the BFIC becomes, and is renamed, the Financial Services and Markets Authority (Autoriteit Financiële Diensten en Markten/Autorité des Services et des Marchés Financiers, the "FSMA"). The abbreviation FSMA will be the official acronym to be used both in Dutch and French.
  • The FSMA remains responsible for the supervision of the financial markets and the rules of behaviour of the institutions, and becomes responsible for the application of the rules on profession conduct.

Abolition of the CSRSFI

The Royal Decree abolishes the Committee for Systemic Risks and Systemic Financial Institutions (Comité voor systeemrisico's en systeemrelevante financiële instellingen/Comité des risques et établissements financiers systémiques, the "CSRSFI"). The CSRSFI was created by the Law of 2 July 2010 to function as a transitional body until the entry into force of the "twin-peaks" model supervisory architecture.

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