Romania, like all the other European countries, is beating the drums for the implementation of the CRD III remuneration policies and practices by January 1 2011.
Following the approval of the Directive amending Directives 2006/48/EC and 2006/49/EC regarding capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies, the National Bank of Romania has drafted an amendment (the draft CRD III Regulation) to Regulation 18/2009 concerning the management of credit institutions' activities, the internal evaluation process of the capital adequacy to risks and the externalisation of their activities.
The draft CRD III Regulation transposes the CRD III remuneration principles but fails to mention the remuneration due on the basis of contracts concluded before the effective date of implementation in Romania, ie before January 1 2011, and awarded or paid after January 1 2011. Remuneration awarded for services provided in 2010 but not yet paid by January 1 2011 is not covered either.
In the absence of such express inclusion, Romanian credit institutions should, according to Romanian principles regarding non-retroactivity and immediate application of the law, implement the new remuneration requirements only for services provided next year.
Since this would not be in accordance with the CRD III purpose, perhaps the National Bank of Romania should consider adding a text concerning the situation of current remunerations that have not been awarded/paid prior to the CRD III Regulation.
Another oversight of the CRD III Regulation, albeit a minor one, is the omission of the principle requiring the staff engaged in control functions to be independent, with appropriate authority and remunerated in accordance with the objectives linked to their functions. Although overlooked, such principle should be un-equivocally included in the new remuneration policies adopted by each institution.
The Guidelines of the Committee for European Banking Supervisors on sound remuneration policies are expected in mid-December 2010. The National Bank of Romania is most likely waiting for these guidelines before determining, for example, what constitutes a large bonus requiring the cap of upfront cash bonuses to 20% of the total bonus.
At this stage the manner in which the principles outlined by the draft CRD III Regulation can be put into practice by the banks, and the means by which the proportionality can be applied without further instructions from the National Bank of Romania, are not crystal clear. Since there are only about two weeks between the anticipated date of the CEBS Guidelines and the principles becoming effective, one may wonder how much time is left for the National Bank to issue such further instructions.
What is clear is that with or without such instructions, by January 1 2011 Romanian credit institutions and investment firms must have in place the framework to allow the CRD III principles to operate.
The measures that may be imposed by the National Bank of Romania, where appropriate remuneration policies are not adopted or implemented, include the regular sanctions applicable to credit institutions, eg written warnings, fines in the range of 0.05% and 1% of the credit institutions' share capital or withdrawal of the institution's authorisation.
Given the very tight deadline and possible sanctions, Romanian banks will need to take the following steps for the implementation of the CRD III principles by the end of the year:
- prepare a list of the exact individuals that should be covered in each institution by these remuneration policies;
- set-up a remuneration committee within institutions that are significant in terms of size, internal organisation and the nature, scope and complexity of their activities ("significant" still remains to be defined);
- register the remuneration committee with the Trade Registry and the authorisation thereof by the National Bank of Romania;
- design the remuneration policies (and this could prove to be very difficult in the absence of relevant guidance before mid-December 2010) and obtain approval by the relevant administration or supervisory board of these policies;
- devise appropriate instruments in the form of shares (or equivalent instruments) or share-linked instruments or other non-cash instruments (in the case of non-listed credit institutions) available as payment for at least 50% of the variable remuneration of the individuals falling under these principles;
- sign the addenda to the ongoing employment agreements or to any other agreements establishing bonuses, as well as have them registered with the relevant authorities, whenever the case;
- establish appropriate procedures to review at least annually and update the remuneration policies etc.
In anticipation of the measures and actions that must be executed, the Romanian institutions covered by the scope of CRD III Regulation are expecting further clarification. The efficiency of the CRD III Regulation can be assessed once clarification has been received and the remuneration policies properly implemented.