On 23 May 2019, HM Treasury published a letter from John Glen MP (Economic Secretary to the Treasury) to Lord Boswell (Chair, House of Lords’ European Union Committee) providing further clarification on the remuneration proposals developed in the Capital Requirements Directive V (CRD V).
The letter makes the following points:
- the CRD V builds on the remuneration policy included in previous Directives, further harmonising the EU’s remuneration rules, including the application of the bonus cap to all EU firms;
- HM Treasury’s analysis has confirmed that the CRD V remuneration proposals will mean that all UK banks would now be subject to the bonus cap. This means that the bonus cap will be extended to 200 firms for which the PRA currently waives remuneration requirements. However, not all of these firms will be subject to all the remuneration requirements in the CRD V – HM Treasury expects around 19 more UK firms will be captured by the entirety of these requirements;
- HM Treasury has engaged with smaller banks and building societies on the CRD V remuneration proposals and has concluded that the impact on these entities is limited as bonuses paid to employees tend to fall below the cap. For example, HM Treasury understands that only one individual out of the UK’s 43 building societies would be captured;
- investment firms who are currently subject to CRD IV rules will benefit from more proportionate remuneration rules under the new prudential regime for investment firms, the Investment Firms Review. Under these rules, investment firms will not be subject to a bonus cap; and
- the UK still retains certain discretions to ensure the impact of the CRD V remuneration proposals are limited. For example, the UK can raise the €5bn threshold for remuneration policy to a €15bn limit, which is much closer to the UK’s current threshold.
Mr Glen concludes his letter by stating: “In summary, whilst the amendments to the remuneration text in CRD V would change the UK’s approach, the impact on smaller firms is manageable. It is also important to note that the firms affected are predominately those operating on a UK domestic-only scale. UK firms operating internationally are generally not expected to be affected by these proposals, meaning the impact on UK international competitiveness is likely to be limited.”