Changes To Bonus Rules In The Dutch Financial Supervision Act (Wft) - Key Developments

Executive Summary

The proposed amendments to the Dutch Financial Supervision Act (Wet financieel toezicht - Wft) introduce a more targeted application of the 20% bonus cap. The key change limits the scope to "identified staff" whose activities materially influence the risk profile of financial institutions, rather than applying it broadly to all employees. The House of Representatives (Tweede Kamer) of the Dutch Parliament has formally approved these amendments. The matter is now pending approval by the Senate (Eerste Kamer). Such approval is expected later this spring.

1. Key Differences from Current Wft Bonus Rules

Narrower Scope of Application

The fundamental change is that the 20% bonus cap will no longer apply to all employees, but only to "identified staff" whose activities materially influence the institution's risk profile.

Unchanged Cap Percentage

The 20% bonus cap percentage itself remains unchanged, including for directors.

Consistent Application Across Multiple Provisions

The limitation to "identified staff" applies across multiple Wft provisions (Articles 1:118(3), 1:120(2)(b), 1:121, 1:122(1), and 1:130), with the criterion "whose activities materially influence the risk profile" being consistently added.

Definition of "Identified Staff"

The definition encompasses:

• Members of the management body
• Senior management
• Employees with managerial responsibility over control functions or material business units
• Certain highly-paid specialists (over €500,000) in material business units

2. Improvements Compared to Current Wft

Better EU Alignment

The more targeted application ensures better EU alignment by applying the bonus cap only to employees who materially influence the risk profile, rather than all employees.

Enhanced Competitive Position

The changes improve the business climate and competitive position by:

• Alleviating recruitment and retention challenges
• Reducing restrictions on specialists (such as IT professionals)

Greater Regulatory Clarity

There is greater clarity as the categories of "material risk-takers" are now linked to CRD Article 92(3).

Preservation of Prudential Objectives

The strict 20% cap remains in place where it matters most: for directors and other risk-relevant functions, thereby preserving the policy objective of reducing perverse incentives and protecting client interests.

3. No Deterioration of Standards

No Increased Restrictions

There are no deteriorations or intensifications compared to the current Wft. The proposal narrows the application of the bonus cap from all employees to only "identified staff", whilst the 20% cap itself and the general scope across financial institutions remain unchanged.

Reduced Compliance Burden

Various associated remuneration requirements will be limited to risk-relevant employees:

• 50% non-financial criteria requirement
• Annual report disclosure obligations
• Conditions for retention payments
• Five-year retention period for certain instruments in fixed remuneration

This limitation reduces the compliance burden for financial institutions.

4. Impact Assessment

Relief for Most Employees

The proposed amendment represents a relief from current rules for most employees, whilst maintaining stringent bonus restrictions for functions that are genuinely risk-determining.

Improved Business Climate

The changes should improve the Dutch business climate without compromising prudential objectives, making the Netherlands more competitive in attracting and retaining talent in the financial sector.

Maintained Prudential Standards

The core prudential safeguards remain intact for positions where strict bonus limitations serve their intended purpose of mitigating excessive risk-taking.

5. Practical Implications for Financial Institutions

Financial institutions should begin preparing for these changes by:

1. Identifying Affected Staff - Determine which staff members fall within the "identified staff" definition based on the criteria outlined in CRD Article 92(3)
2. Reviewing Remuneration Policies - Assess current remuneration policies and structures to ensure compliance with the amended framework
3. Updating Recruitment Strategies - Reassess recruitment and retention strategies, particularly for specialist roles that were previously subject to the 20% cap
4. Updating Compliance Frameworks  - Ensure internal compliance frameworks and procedures are updated to reflect the narrower scope of application
5. Communication Planning - Prepare internal communications to explain the changes to affected and non-affected employees

Conclusion

These amendments strike a careful balance between maintaining robust prudential standards and enhancing the competitiveness of Dutch financial institutions in the European market.

The targeted approach ensures that strict bonus limitations remain in place for those positions where they serve their intended purpose—mitigating excessive risk-taking—whilst removing unnecessary restrictions on other professionals.

This represents a pragmatic refinement of the regulatory framework that responds to practical challenges whilst preserving the core objectives of the original legislation.

Next Steps

We will continue to monitor developments in this area and provide updates as the legislative process progresses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.