BaFin made the draft of the amended Remuneration Ordinance for Institutions (Institutsvergütungsverordnung), which it had worked on jointly with the Deutsche Bundesbank, available for public consultation in 2016. An oral hearing took place in November. BaFin plans to issue the amended version of the Remuneration Ordinance for Institutions in the second quarter of 2017. The ordinance will come into effect one day after publication.

The Federal Ministry of Finance had used a transfer order¹ to authorise BaFin to issue an amending ordinance. The principal objective of the amendment was to reflect the guidelines on sound remuneration policies² published by the European Banking Authority (EBA) on 21 December 2015.

The most important new features of the Remuneration Ordinance for Institutions are:

• All remuneration must be classified as fixed or variable. A third category of remuneration is no longer permitted.
  
  
• Allowances for staff working abroad or in a different position may qualify as fixed remuneration subject to certain conditions (including for the purposes of calculating the bonus cap pursuant to section 25a (5) of the Banking Act) and are therefore not subject to the risk adjustment provisions of the Remuneration Ordinance for Institutions.
  
  

• As an additional ex post risk adjustment instrument, significant institutions must have the following instruments for the purposes of complying with malus criteria:
  
  

  1. The ability to reduce retained bonus components.
  2. In addition, in cases of serious personal misconduct, the ability for a defined period to demand repayment of variable remuneration components already paid (clawback).
     
     
• Explicit rules govern the payment of a proportion of the variable remuneration in instruments eligible for bail-in – namely, as part of the requirement in section 20 (5) of the Remuneration Ordinance for Institutions to link part of the remuneration paid to the subsequent performance of the institution.
  
  
• It is also made clear that, within the prudential scope of consolidation, the provisions of the ordinance also apply to the remuneration schemes of those employees whose professional activities materially affect the group's risk profile (group risk bearers).

The principle of proportionality continues to be implemented at institution and employee level in the form of thresholds (total assets and level of variable annual remuneration, respectively). Where those thresholds are reached or exceeded, the special requirements for the risk adjustment of the variable remuneration of risk bearers must be applied.

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