(Sound) Compensation @ Remuneration reports 2023

In the revised EBA Guidelines (1) for the comparison of remuneration practices, the gender pay gap and the approved higher maximum ratios under Directive 2013/36/EU (as amended by Directive 2019/878/EU, CRD V) (EBA/GL/2022/06), (2) for the comparison of remuneration practices and the gender pay gap under Directive (EU) 2019/2034 (IFD) (EBA/GL/2022/07), and (3) for data collection with regard to high earners under CRD V and the IFD (EBA/GL/2022/08, both dated 30.06.2022), supervisory authorities are required to collect the information referred to in these guidelines in the specified form and scope from CRR credit institutions and securities institutions and to provide it to them in the format required by the EBA (by 31.10.2023 in the case of CRR credit institutions). The revised EBA Guidelines are to be applied in each case from 31.12.2022.

In order to implement the revised requirements of the reporting obligations in accordance with the EBA guidelines, the German legislator plans to make adjustments with regard to the notification obligations pursuant to Section 24 (1a) nos. 5 and 6 of the German Banking Act (Kreditwesengesetz, KWG) in conjunction with Section 9a of the German Notification Ordinance (Anzeigenverordnung, AnzV). Also planned is a German Notification Ordinance for Investment Firms (Wertpapierinstitut-Anzeigenverordnung, WpI-AnzV), which will clarify the notification obligations of investment firms pursuant to Section 65 (2) nos. 2 and 3 as well as Section 66 (3) in conjunction with Section 65 (2) no. 2 and 3 of the German Investment Firm Act (Wertpapierinstitutsgesetz, WpIG) in accordance with the EBA Guidelines.

Since the legislative procedures for implementing the notification requirements in the WpIG, the Wpl-AnzV, the KWG and the AnzV will not be completed in time for the reporting deadlines envisaged by the EBA in 2023, BaFin's purpose in issuing the general ruling (Allgemeinverfügung) regarding the remuneration notifications as of the reporting deadline of 31.12.2022 is to create a binding legal framework for the CRR credit institutions concerned to implement the notification requirements. For investment firms, BaFin intends to adopt an identical approach in terms of content for the reporting date of 31.12.2022 and posted a draft for the corresponding general ruling on its website for consultation on 05.05.2023.

1. General ruling as legal basis for general market-wide reporting obligations?! - BaFin as substitute legislator for reporting obligations as of 31.12.2022

From a legal methodology perspective, the BaFin’s approach for the - provisional - implementation of the more extensive reporting obligations vis-à-vis CRR credit institutions is interesting: BaFin bases the legal basis required for the general ruling as an administrative act (Section 35 sentence 2 of the German Administrative Procedure Act, (Verwaltungsverfahrensgesetz, VwVfG)) (in particular for institutions subject to supervision by the European Central Bank) on Section 24 (3b) KWG. Pursuant to Section 24 (3b) sentence 1 KWG, BaFin and the Deutsche Bundesbank may impose additional notification and reporting requirements on institutions or types or groups of institutions, in particular in order to obtain an in-depth insight into the development of the institutions' economic circumstances, their principles of proper management, and the capabilities of the members of the institutions' governing bodies, to the extent necessary for BaFin and the Deutsche Bundesbank to exercise their duties. Section 24 (3b) KWG refers to individual institutions in accordance with the intention of the legislator and is intended to enable the financial supervisory authority in individual cases to request individual, more extensive institution-specific information relevant to remuneration from the institution concerned. BaFin, on the other hand, by issuing general rulings, effectively assumes the temporary role of substitute legislator vis-à-vis the entire relevant CRR credit institution addressee group. It also states this in the general ruling with the announcement that the notification obligations from Section 9a (1) and (2) AnzV are not to apply to the notification obligations as of 31.122022.

2. Specific notification obligations I - Comparison of remuneration trends and practices (REM benchmarking): (Only) Significant institutions within the meaning of Section 1 (3c) KWG

The notification obligations regarding remuneration trends and practices are to be observed by significant institutions on an institution-specific level or in a group context. In detail, BaFin specifies the following addressees and the following applicable forms in the general ruling:

Non-qualified insignificant institutions within the meaning of Section 1 (3) sentence 2 InstitutsVergV and other insignificant institutions are not subject to the notification requirements under the general ruling. However, such institutions may be subject to the notification obligation pursuant to Section 24 (1a) no. 5 KWG in individual cases upon request by the supervisory authority or the Deutsche Bundesbank - and BaFin or the Deutsche Bundesbank, as the case may be, will refer to the guiding principles set out in the general ruling for the presentation of the content of such a notification obligation in the event of such a request in an individual case.

In the general ruling, BaFin does not elaborate on the information and data on the gender pay gap that is also subject to reporting requirements under Section 24 (1a) no. 5 KWG. This is (obviously) against the background that the report on the gender pay gap has to be submitted in a three-year cycle and is to be submitted for the first time as of the reporting date of 31.12.2023 - to which the general ruling does not refer.
 

3. Concrete reporting obligations II - income millionaires (REM High Earners)

For the notification of income millionaires, BaFin determines the following addressees in the general ruling and the following applicable forms in each case:

CRR credit institutions that are subordinated entities of an EU parent institution, an EU financial holding company or an EU mixed financial holding company are exempt from notification. The relevant CRR credit institutions shall report the information on directors, members of the administrative or supervisory body and employees, each with a total annual remuneration of at least EUR 1 million as defined in Article 75 (3) CRD V, for the previous financial year. The forms on which the notification is based have also been fundamentally revised and expanded in this area. The missing notification previously required under Section 9 (2) sentence 2 AnzV for institutions without income millionaires has been dropped. These institutions are no longer required to submit a missing report.

4. Specific notification requirements III - Notification of higher upper limits (REM Higher Ratios)

For the notification of higher ratios, BaFin specifies the following addressees and applicable forms in the general ruling:

In connection with this reporting obligation, Art. 94 (1) g) subpara. 2 indent 5 CRD V stipulates the collection of a two-year benchmarking of any increases in the maximum value for variable remuneration (so-called bonus cap). CRR credit institutions with a resolution approving a higher maximum value for variable remuneration pursuant to section 25a (5) sentences 2 and 5 KWG are required to report the information required for the purposes of Art. 94 (1) lit. g) subpara. 2 indent 5 CRD V at individual institution level. The German legislator has not yet anchored this biennial notification requirement in the KWG. The notification requirements set out in Section 24 (1) No. 14, 14a and 14b KWG with regard to the approval of higher variable remuneration are not congruent with the notification requirement set out in the EBA guidelines and are therefore not suitable for fulfilling the aforementioned CRD V requirements.

5. Addressees of the notifications: BaFin, Deutsche Bundesbank and ECB

The addressees of the remuneration notifications remain unchanged: CRR credit institutions supervised by BaFin must submit the notifications to BaFin and to Deutsche Bundesbank (Sections 24(1) and (1a), 1(5) KWG). CRR credit institutions supervised by the ECB must submit the notifications to the ECB and to BaFin (Sections 24(3c) sentence 1, 1(5) KWG).

6. Outlook. After 2022 is before 2023 - Modification of the legal requirements in the KWG and the AnzV for the subsequent reporting date of 31.12.2023.

Institutions must submit the aforementioned reports for the reporting date of 31.12.2022, to the Deutsche Bundesbank by 31.8.2023, using the electronic transmission channel (= uploading via the respective form on the extranet). For the subsequent reporting date of 31.12.2023, it may be expected that the legislator will have made the planned legal changes to the KWG and the AnzV in the meantime and that the 'interim route' of the general ruling chosen by BaFin for the reporting date of 31.12.2022 will remain a one-time event with regard to the legislation and (monitoring of the) application of the law of the specific reporting obligations on remuneration and remuneration systems in accordance with Section 24 KWG.