Law of 28 October 2011 on remuneration policies in the financial sector

The amended law of 5 April 1993 on the financial sector is amended by a law of 28 October 2011, published this 3 November 2011 in Memorial A, and transposing directive 2010/76/EU of 24 November 2010 amending Capital Requirement Directives 2006/48/EC and 2006/49/EC.

To be CSSF approved, banks and credit institutions (article 5, par. 1bis, amended law of 5 April 1993) and investment firms (article 17, par. 1bis, subpar. 2, amended law of 5 April 1993) will, from now on, include by law “robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with, and promote, sound and effective risk management, as well as control and security mechanisms of IT systems.”

The CSSF already has the power to impose or apply financial and non-financial penalties (injunction, suspension or administrative sanctions, article 59 and article 63, amended law of 5 April 1993).

CSSF powers are extended in the case of a failure to comply with capital requirements and include (article 53, par. 2, subpar. 1, last two indents, amended law of 5 April 1993):

  • requiring credit institutions or investments firms to limit variable remuneration as a percentage of total net revenues when said variable remuneration is inconsistent with the maintenance of a sound capital base”;
  • requiring credit institutions to use net profits to strengthen the capital base”.

The following is added (article 53, par. 2, in fine, amended law of 5 April 1993):

“For the purposes of determining the appropriate level of own funds on the basis of the review and evaluation carried out as part of the prudential supervision process, the CSSF shall assess whether any imposition of a specific own funds requirement in excess of the minimum level is required to capture risks, to which a credit institution or an investment firm is or might be exposed, taking into account the following:

  • the quantitative and qualitative aspects of the firm's internal assessment process of internal own funds adequacy;
  • the arrangements, processes and mechanisms referred to in Article 5 or Article 17;
  • the outcome of the review and evaluation carried out as part of the prudential supervision process”.

For more information please contact:  Freddy BrauschHélène Weydert, Christian Hertz or your usual Linklaters contact.