The Wnbfo: strengthening the remuneration framework for the Dutch financial sector

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The Wnbfo: strengthening the remuneration framework for the Dutch financial sector

Insights into new key rules and their effects on remuneration disclosures

The Dutch Further Remuneration Measures for Financial Undertakings Act or “Wnbfo” entered into force recently and applies to virtually all Dutch financial institutions. This blog provides insight into the changes introduced by the Wnbfo, with a specific focus on its effects on remuneration-related disclosure requirements.

The Wnbf enhances the existing Dutch legal framework for remuneration

Since 2015, the Netherlands has chartered its own course when it comes to statutory remuneration requirements for financial institutions. Instead of adopting the sectoral approach to (remuneration) regulation favored by the European legislator, the Netherlands has implemented a regime of general remuneration requirements based on the European Capital Requirements Directive – and applied this framework to virtually all Dutch financial institutions.

This sector-wide remuneration framework is referred to as the Dutch Remuneration Policies for Financial Institutions Act (Wet beloningsbeleid financiële ondernemingen,Wbfo”). After a five year legislative process starting with an evaluation of the Wbfo in 2018, a set of new measures supplementing the Wbfo entered into force on 1 January 2023. These amendments are known as the Dutch Further Remuneration Measures for Financial Undertakings Act (Wet nadere beloningsmaatregelen financiële ondernemingen,Wnbfo”). In this blog, we will briefly elaborate on the key changes brought about by the Wnbfo, with a particular focus on the impact on remuneration-related disclosure requirements.

The Wnbfo introduces three main changes to the existing remuneration framework

In 2018, the Dutch Minister of Finance suggested the inclusion of four new measures into the Wbfo. Three of these suggestions have now been implemented:

  1. Retention period. A five-year retention period has been introduced for instruments awarded as fixed remuneration. Although this requirement is new to the Wbfo, it will already be familiar to financial institutions subject to the Dutch Corporate Governance Code (a set of governance requirements applicable to listed companies on a 'comply-or-explain' basis). For the avoidance of doubt: rules regarding retention periods for instruments awarded as part of variable remuneration remain unchanged;
  2. Limitation of the so called 'pool' exemption. One of the best known provisions in the Wbfo is the bonus cap: the maximum ratio between fixed and variable remuneration. Until recently, institutions could deviate from the strict 20% individual cap by calculating compliance for a 'pool' of staff, rather than individually. This exemption was subject to several requirements, including that it could only be applied to staff that are not remunerated pursuant to a collective labor agreement. Under the Wnbfo, the scope of this exemption has been limited by excluding – among others – staff in control functions and emphasizing that any individual ratio in excess of 20% is only permitted in exceptional circumstances; and
  3. Remuneration versus role in society. Institutions must now explain in their remuneration policies, in short, how their remuneration levels and practices relate to their function and role not just within the sector, but also within society.

For the sake of completeness, the fourth requirement suggested in 2018 was the introduction of a statutory requirement to claw-back a portion of directors' fixed remuneration above a certain threshold if their institution receives state-aid. This measure was abandoned after a public consultation in 2018.

Institutions must now carefully consider how their remuneration fits with their role in society

Out of the three key changes detailed above, the newly introduced requirement for financial institutions to explain how their remuneration levels and practices relate to their function within society, is particularly eye catching.

The scope of this requirement isn't limited to just banks or insurers, but instead applies to all types of financial institutions. According to the Dutch legislator, an important aspect of this requirement is that financial institutions provide insight into the way stakeholders (such as employees, shareholders or even clients) were (actively) involved in the design and execution of the remuneration policy. Additionally, the legislator specified that special attention must be given to the remuneration of employees at or near the top of their firm.

This new requirement can be applied with a certain degree of proportionality: the bigger and more complex the institution, the more elaborate the description is expected to be. Especially for bigger institutions, it also makes sense to connect to and reference the institution’s Environmental, Social and Governance (“ESG”) strategy. For example, including actual ESG performance in the remuneration policy and individual target setting could be a useful tool to align remuneration practices with the institution's wider ambitions within society, as well as the interests of certain stakeholders.

New amendments to the remuneration policy should be reflected in remuneration disclosures

Financial institutions are already subject to a general requirement to disclose the key elements of their remuneration policy in their annual reports, as well as on their websites (in addition to certain more specific disclosure requirements, such as the so called "Pillar 3" disclosures for banks).

Although the new requirement to consider an institution's role applies in context of an institution's remuneration policy, the inclusion of this information in the policy subsequently also affects the general disclosure requirement referenced above. According to the legislator, the rationale behind the new public disclosures is that stakeholders can use them to hold financial institutions accountable.

The Wnbfo urges institutions to take a look at their existing remuneration policies

All Dutch financial institutions should be aware of the changes to the Wbfo. In that regard, it is especially worth noting that the mandatory inclusion of the “remuneration versus role” description requires institutions to proactively review their existing remuneration policies and make adjustments accordingly. In our view, this description can benefit from an explicit link to ESG strategy and goals. On that note, a practical guide for incorporating ESG performance in remuneration policies can be found here.

Please contact us for more information

Deloitte Legal can assist in making your remuneration policy “Wnbfo proof” and keeping up with relevant regulatory developments on remuneration in the financial services industry. Please contact Jochen Blaffert or Julius Lussenburg if you have any questions regarding legal perspectives on remuneration.

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