Regulations
Article from BaFin's 2017 annual report
Amendments to the Remuneration Regulation for Institutions
On 3 August 2017, following a consultation and preparatory phase lasting several months, BaFin promulgated the Regulation Amending the Remuneration Regulation for Institutions (Verordnung zur Änderung der Institutsvergütungsverordnung)1, prepared jointly with the Deutsche Bundesbank. The amended version, which revises the Remuneration Regulation for Institutions of 2013, came into effect one day after publication.
The amendments have implemented the principal requirements of the EBA guidelines for sound remuneration policies2 into German law. The guidelines set out the remuneration rules of the European Capital Requirements Directive CRD IV and the Capital Requirements Regulation CRR in detail.
Accordingly, the new Regulation focuses in particular on clearer contouring of the types of remuneration and greater differentiation in the treatment of the different forms of variable remuneration. Other major topics include the detailed specification of the risk adjustment provisions and the new obligation to apply clawback arrangements. These arrangements enable variable remuneration components already paid to be reclaimed. Further new features relate to the use of bail-in-able instruments for the purposes of variable remuneration and the remuneration policy at group level, including the identification and treatment of group risk takers.
MaSan Regulation
In August 2017, BaFin published the draft of a regulation on the minimum requirements for recovery plans for institutions and securities firms (Rechtsverordnung zu den Mindestanforderungen an Sanierungspläne – MaSan Regulation), and an accompanying guidance notice, for consultation. Background: the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz) imposes an obligation on all institutions to prepare a recovery plan. Requirements for the contents of recovery plans can be found in the Recovery and Resolution Act, in the EBA guidelines and in Commission Delegated Regulation (EU) No 2016/1075.
Section 21a (1) of the Recovery and Resolution Act authorises the Federal Ministry of Finance to set out minimum requirements for the structure of recovery plans in a regulation (MaSan Regulation). The Federal Ministry of Finance has transferred the authorisation to issue a regulation to BaFin, subject to the proviso that the regulation is promulgated in consultation with the Deutsche Bundesbank.
Regulation and guidance notice
On 9 August 2017, BaFin published the draft of the MaSan Regulation and the draft of a guidance notice on recovery planning for consultation. BaFin asked for comments on the contents of the MaSan Regulation and on the format of the rules and explanatory notes as a regulation and a guidance notice. The consultation exercise did not result in the need for any material changes to the MaSan Regulation or the guidance notice. Moreover, the German Banking Industry Committee has emphasised that it considers the format of the rules, consisting of a regulation and an explanatory guidance notice, to be appropriate.
The content of the MaSan Regulation focuses firstly on recovery plans of institutions posing a potential systemic risk (PSIs, see info box "Systemically important institutions and institutions posing a potential systemic risk"), which must always comply with the full requirements. Secondly, it sets out simplified requirements for recovery plans which non-PSIs are required to prepare. In addition, the MaSan Regulation specifies requirements for the recovery plans of institutional protection schemes (IPSs). The reason for this is that institutions belonging to an institutional protection scheme that do not pose a potential systemic risk can be exempted from the recovery planning requirements. In such cases, the IPS must prepare a recovery plan relating to the institutions exempted. The MaSan Regulation sets out the relevant preconditions for exemption and the requirements for the contents of such recovery plans.
Note:Systemically important institutions and institutions posing a potential systemic risk
BaFin reviews which institutions should be classified as posing a potential systemic risk (PSIs) at least once a year in consultation with the Deutsche Bundesbank. An institution is considered to pose a potential systemic risk if it is either a “global systemically important institution” (G-SII) or an “other systemically important institution” (O-SII), or if BaFin is unable to stipulate simplified requirements for recovery planning for this institution.
In 2017, BaFin classified a total of 39 institutions as PSIs. This is the same number of institutions as in the previous year. The breakdown of the institutions has changed, however: the 39 institutions classified as PSIs in 2017 include one G-SII, as before, but 13 O-SIIs (previous year: 14) and 25 institutions for which simplified requirements for recovery planning cannot be stipulated (previous year: 24).
A change was made during the year under review to the methodology for allocating the O-SIIs to the capital buffer classes. On the basis of previous years' experience, BaFin and the Bundesbank have now introduced defined threshold values for the capital buffer classes relating to the additional Common Equity Tier 1 capital required to be held by O-SIIs. However, this did not result in any changes to the capital buffers for the institutions concerned.
Footnotes:
- 1 See BaFinJournal February 2017, page 5 (only available in German).
- 2 Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013.
