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Ordinance on the Supervisory Requirements for Institutions’ Remuneration Systems Remuneration Ordinance for Institutions (Institutsvergütungsverordnung – InstitutsVergV)

Remuneration policies that focus on short-term parameters and simply reward success without properly punishing failure may tempt staff to lose sight of the factors that keep their company sustainably successful over the long term. Such remuneration policies are antithetical to adequate risk management. The financial market crisis has demonstrated that the “moral hazard” created by misguided remuneration policies may put at risk not only the stability of individual enterprises, but also financial stability in general.

The Remuneration Ordinance for Institutions fleshes out the provisions of Section 25a(1) sentence 3 number 6 of the German Banking Act (Kreditwesengesetz). It requires institutions to have appropriate and transparent remuneration systems aligned with the aim of sustainable business development.

On 27 June 2016, the European Banking Authority (EBA) published guidelines on sound remuneration policies. These guidelines have been in force since 1 January 2017 and supersede the previous CEBS guidelines of 10 December 2012. As part of their implementation, the Federal Financial Supervisory Authority (BaFin) adjusted the Remuneration Ordinance for Institutions and the accompanying interpretation guide. The amended Ordinance entered into force on 4 August 2017. The new interpretation guide was published on 16 February 2018.

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