15 October 2025
InstitutsVergV 5.0? – Overview of planned changes
The fifth amendment to the German Remuneration Regulation for Financial Institutions (InstitutsVergV) is imminent. Two current draft bills1 provide not only for semantic clarifications, but also for more far-reaching changes. The regulatory journey continues. ESG, governance and target agreement obligations are new fixed points.
Is this the end of regulatory exclusion?
In future, the InstitutsVergV will also apply to CRD third-country branches (Section 53c KWG). And Section 27 IVV will be extended to parent financial holding companies. This would significantly expand the scope of application. This is intended to be a step towards regulatory coherence within the group.
The background to this is the harmonisation of regulatory requirements in the wake of CRD VI. In its statement on the BMF draft, the Association of Foreign Banks warns against gold plating and overregulation, which could structurally disadvantage third-country branches and make Germany an unattractive location.2
Control units become “internal control functions”
The term Kontrolleinheiten (control units) will be replaced by interne Kontrollfunktion (internal control functions) – without any change in content. This aligns with the implementation of Art. 92 (2) (e), (f) and Art. 94 (2) (a) CRD VI.
The aim is to clearly distinguish internal from external functions and strengthen internal governance structures.
Determining remuneration parameters before the start of the assessment period
Section 2(9) of the InstitutsvergV already defines remuneration parameters as the quantitative and qualitative determinants used to measure the performance and success of an employee, an organisational unit or the overall success of an institution or group. In future, these remuneration parameters will have to be defined before the start of the assessment period, with explicit consideration given to ESG risks. The wording “before the start” could mean that the obligation to agree on targets is brought forward, which could potentially conflict with BAG case law (10 AZR 57/24).
In our view, the effectiveness of a delayed target agreement under labour law would still be in accordance with BAG case law if it can continue to fulfil its motivational and incentive function. But from a regulatory perspective, there could be objections from BaFin and auditors.
If the draft is adopted as it stands, we’d strongly recommend ensuring that targets are agreed or specified before the start of the bonus year. Any provisions to the contrary would need to be amended. This applies, for example, to works agreements that stipulate that targets must be agreed by 31 March.
Creditworthiness assessors subject to governance
A new explicit provision on the remuneration policy for employees who carry out creditworthiness assessments will be added. Their remuneration should be aligned with the business strategy and long-term interests of the institution and take ESG risks into account.
Conclusion and practical advice
The planned amendments to the InstitutsVergV are selective, but their impact is far-reaching.
The extension of the scope of application to third-country branches and parent financial holding companies, and bringing forward the determination of remuneration parameters before the start of the assessment period, are significant.
While the BAG has recently allowed some flexibility in the timing of target agreements, setting targets after the start of the bonus year may become problematic from a regulatory perspective in future.
Compliance with new time requirements could become relevant for audits: auditors could note violations in their audit reports, and the supervisory authority could also make a corresponding finding. Institutions are advised to review and, if necessary, adjust existing bonus plans and company agreements – especially if they currently allow target agreements until the end of the first quarter.
The same applies to integrating ESG risks into the remuneration strategy, which – according to current legislative proposals – is not only expected but also required by regulation.
1Draft bill by the Federal Ministry of Finance on the Banking Directive Implementation and Bureaucracy Relief Act – BRUBEG of 22 August 2025 and draft bill of the Federal Ministry of Justice and Consumer Protection on the draft law implementing Directive (EU) 2023/2225 on consumer credit agreements of 23 June 2025.
2Statement on the draft bill for the Banking Directive Implementation and Bureaucracy Relief Act (BRUBEG), Association of Foreign Banks in Germany e.V., (last retrieved on 16 September 2025).