New Proposal of The European Commission on Remuneration Policy

The attached Alert Memorandum (in Italian) concerns certain new EU and Italian regulations on remuneration policies affecting banks and investment firms.

The Memorandum was drafted in connection with the amendments to the EU Capital Requirements Directives recently proposed by the EU Commission and further to the discussions held on the matter between the Italian regulatory authorities and various market players in the course a two-day seminar organized by the Italian Banking Association (ABI) in early July, to which our lawyers participated as speakers.

The Commission’s proposal requires European financial institutions to establish remuneration policies that do not reward excessive risk-taking operations and, in substance, could bring far-reaching changes in such institutions’ compensation practices, including a capped proportion between the fixed and variable compensation, limits to the terms and conditions regulating the payment of bonuses, equity-settled awards and golden parachutes, as well as changes to the composition of the remuneration committees (partially anticipated by the Bank of Italy with its 2008 regulations, addressing the key features that Italian banking groups’ remuneration policies should contain).

The Memorandum provides an overview of the Commission’s proposal and an analysis of certain potential issues deriving from its implementation, as well as a comparison between certain prospective changes and the Bank of Italy’s regulations, the Commission’s recommendations on remuneration policies issued on April 30, 2009 and the guidelines published by the Committee of European Banking Supervisors on April 20, 2009. While it is yet unknown when the EU Commission’s proposal will be implemented, the Bank of Italy’s regulations are already effective and required Italian banks to comply by June 30, 2009.