Get ready for finalised CRD V

22/10/19

In brief

The revised Capital Requirements Directive, commonly referred to as CRD V, upgrades and continues to implement Basel III in the EU by making significant amendments in a number of areas including Human Resources and Remuneration.

This Flash news highlights the key differences between the CRD IV and the final CRD V framework. Additionally, it explains how PwC Luxembourg will help you get prepared before the deadline. This will allow you to communicate efficiently your new applicable remuneration structure to your employees in advance.

In details

The modifications under CRD V will require impacted firms to reconsider their HR and remuneration arrangements. The Directive has entered into force on 27 June 2019 and Member States have until 28 December 2020 to amend their local remuneration rules to reflect the new CRD V provisions.

Impacted firms

EU credit institutions and investment firms within scope of CRD V.

When

The first impacted performance year is expected to be 2021.

Proportionality

New thresholds have been established and may affect several firms. These firms will not be able to apply proportionality any longer. More MRTs will be subject to requirements on deferral, payment in instruments and malus & clawback on their bonuses.

  At firm level At individual level
Under CRD IV a max. total balance sheet of €5 billion and of capital requirements of max. €125 million (cumulative criteria). a threshold of annual variable compensation of €100,000
Under CRD V a total value of assets being on average equal to or less than €5 billion over the four-year period immediately preceding the current annual reporting period. a threshold of annual variable compensation of €50,000 and not more than 1/3rd of total compensation
MRT identification

The EBA is expected to publish a review of Regulatory Technical Standards on MRT identification by end of 2019. It should focus on quantitative tests for identification.

Disclosure of remuneration

Complementary information and advance details on remuneration will have to be disclosed.

Deferral period for variable compensation

From "3 to 5 years" to "4 to 5 years" (5 years for Senior Management). As a reminder, 40% to 60% of variable compensation is to be differed in time where the deferral requirement applies, and min. 50% of the same is to be paid in shares or similar instruments.

Listed firms

Listed firms will be allowed to use phantom awards instead of real shares.

CRD V within groups

New provisions related to the application of the CRD within groups, which are also subject to other remuneration requirements (e.g. AIFMD, UCITS V or the future prudential regime for investment firms).

Gender-neutral remuneration policy

Equal pay for female and male for equal work: firms must have a "gender neutral" remuneration policy, for example based on equal pay for male and female workers for equal work or work of equal value.

Furthermore, local regulators will collect information on the gender pay gap from firms. The gathered information will be provided to the EBA, which in turn will issue a report on the application of gender-neutral policies two years after the publication of the new guidelines.

The EBA will issue guidelines on what constitutes gender-neutral policies.

Conclusion

CRD V will have a significant consequence on the remuneration structure of many firms, predominantly those currently relying on the concept of "proportionality" to neutralize certain remuneration requirements, or firms which apply a shorter deferral period than is required under the new rules.

PwC Luxembourg has extensive experience in advising financial services firms on their remuneration compliance, particularly in relation to remuneration regulations. Experts with EQUAL-SALARY Gender Certification are also part of our dedicated team, which will also be a significant change in remuneration policies under CRD V.

Do not wait for 2021. Get ready now! Please contact PwC Luxembourg to discuss these forthcoming changes and how CRD V will impact your remuneration structure.

Contact us

Bénédicte Burioni

Partner, PwC Luxembourg

Tel: +352 49 48 48 2181

Julien Treffort

Partner, Personal Tax, PwC Luxembourg

Tel: +352 49 48 48 3349

Aude Guinet

Senior Manager, PwC Luxembourg

Tel: +352 49 48 48 4272

Antoine Ozdzinski

Senior Manager, PwC Luxembourg

Tel: +352 49 48 48 3700