July 2015 - Luxembourg Employment Law
Implementation of the Capital Requirement Directive into Luxembourg law
The Draft bill n°6660 which shall aim at implementing the Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms of the European Parliament and of the Council, commonly known as Capital Requirements Directive, was approved on 2 July 2015 and exempted from holding the second constitutional vote on 21 July 2015. Thus, the new law shall soon be published in the official journal (“Mémorial”).
This law modifies certain provisions of the Law of 5 April 1993 on the financial sector, amongst which the formal introduction of a cap on variable remuneration which has been set at 100 % of the fixed remuneration (or 200% with the shareholders approval). In this respect, please refer to our newsletter dated 20 January 2015.
The Capital Requirements Directive was enacted in conjunction with the EU Regulation No 575/2013 on prudential requirements for credit institutions and investment firms. Both are part of the regulatory package in response to the financial crisis.
The Directive applies to all Luxembourg credit institutions and to certain investment firms defined as being within its scope.
As a reminder, among the salient provisions of the Capital Requirements Directive of particular relevance in the field of employment law are those regarding the remuneration policies of said institutions and their employees.
The remuneration policies shall enable a better risk management while reducing excessive risk taking. In this regard, a distinction is operated between fixed and variable remuneration. Provisions in this respect require the setting of Bonus Caps and affect the granting of “early termination payments” and the composition and eventual claw back / malus of variable remuneration.
This law particularly concerns senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the risk profile of their institution.
The delegated Regulation (EU) No 604/2014 of 4 March 2014 has furthermore specified the quantitative and qualitative criteria in order to identify risk takers. It is important to point out that the qualitative criteria do not provide for a derogation, that is to say that every person fulfilling them shall be qualified as a risk taker.