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Ordinance on the Supervisory Requirements for Institutions’ Remuneration Systems

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.

Having entered into force in December 2013, the Remuneration Ordinance for Institutions was last amended with effect from 26 April 2019 by virtue of Article 1 of the Second Regulation amending the Remuneration Ordinance for Institutions of 15 April 2019 as a result of the amendment to the Banking Act by Article 8 of the Act on Taxation-Related Provisions concerning the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (Tax Act relating to Brexit – Brexit-Steuerbegleitgesetz) of 25 March 2019. It differentiates between general requirements for staff remuneration systems at all institutions and special requirements for institutions classified as major pursuant to Section 25n of the German Banking Act and their risk takers.

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