Securities Institutions Remuneration Ordinance comes into force

Pursuant to Section 46 German Securities Institutions Act (Wertpapierinstitutsgesetz – WpIG), securities institutions must have appropriate, transparent remuneration systems that are geared towards the sustainable development of the institution. The ordinance specifying these requirements was finally published in the Federal Law Gazette on 11 January 2024 – more than 3.5 years after the law came into force. The final version looks very different to the draft last consulted on 19 October 2022. But the changes are mainly rearrangements.

The main changes

• Securities institutions have to set a threshold for particularly high variable remuneration, which cannot exceed EUR500,000.
• The requirements of the regulation apply to the remuneration systems of group risk-takers.
• On the other hand, the provisions of Section 18 para. 1 sentence 2 and para. 2 on group-wide remuneration rules should not apply to subordinated companies based in a contracting state that’s bound by special remuneration requirements in accordance with other EU legal acts.
• Section 19 contains a transitional provision according to which the main provisions on variable remuneration, severance payments, retention bonuses and buyouts are to be applied for the first time at the beginning of the financial year following the entry into force of the Regulation. For securities institutions whose financial year is the calendar year, this means these provisions will have to be observed for the first time in 2025.

BaFin and the Bundesbank hold workshop on IVV FAQs

On 25 January 2024, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) and the Federal Bank (Bundesbank) held a workshop on selected issues relating to the Remuneration Regulation for Institutions (Institutsvergütungsverordnung – InstitutsVergV).

The topic of the workshop was the design of “non-cash instruments” in accordance with Section 20 para. 5 InstitutsVergV in non-listed companies. The supervisory authority had a number of (feedback) questions on selected petitions for consultation, which it discussed with the participants.

The aim was to discuss the design of on-cash instruments in unlisted companies, in particular supervisory expectations, the current practice of institutions and possible challenges in the design.

BaFin's view:

Equivalent instruments must appropriately reflect the creditworthiness of the institution by relying on business ratios that reflect the sustainable performance of the institution. However, a comprehensive company valuation is not required.

Practical expectations:

• Relief for “not potentially systemically important institutions”, which are supervised by BaFin, should be extended to all savings banks and cooperative banks.
• Requirement to reduce the instrument until the value is reached if the Common Equity Tier 1 capital ratio falls below at least 7% (or higher if necessary) is not considered necessary.
• Determining the instrument value in “temporal proximity to disbursement” is considered too administratively complex. It should be sufficient to determine the value at the beginning of the financial year in which the grant is made on the basis of the figures for the last completed financial year as part of a regular process.

Adoption of the FAQs on the InstitutsVergV

As part of the workshop, BaFin and the Bundesbank announced that they’re currently evaluating the comments on the draft FAQs and plan to publish the final version of the FAQs at the end of Q1 2024 or at the latest at the beginning of Q2 2024.