15.7.1 Malus and clawback

290.Malus or clawback arrangements are explicit ex post risk adjustment mechanisms where the institution itself adjusts remuneration of the identified staff member based on such mechanisms (e.g. by lowering awarded cash remuneration or by reducing the number or value of instruments awarded). 291.Without prejudice to the general principles of national contract or labour law, institutions must be able to apply malus or clawback arrangements to up to 100% of the total variable remuneration in accordance with Article 94(1)(n) of Directive 2013/36/EU regardless of the method used for the payment, including deferral or retention arrangements.

292.Ex post risk adjustments should always be performance or risk related. They should respond to the actual risk outcomes or changes to persisting risks of the institution, business line or staff’s activities. They should not be based on the amount of dividends paid or the evolution of the share price.

293.Institutions should analyse whether their initial ex ante risk adjustments were sufficient, e.g. whether risks have been omitted or underestimated or new risks were identified or unexpected losses occurred. The extent to which an ex post risk adjustment is needed depends on the accuracy of the ex ante risk adjustment and should be established by the institution based on back-testing.

294.When setting criteria for the application of malus and clawback in accordance with Article 94(1)(n) of Directive 2013/36/EU, institutions should also set a period during which malus or clawback will be applied to identified staff. This period should at least cover deferral and retention periods. Institutions may differentiate between criteria for the application of malus and clawback. Clawback should in particular be applied in the case of fraud or other conduct with intent or severe negligence which led to significant losses.

295.Institutions should use at least the performance and risk criteria initially used in order to ensure a link between the initial performance measurement and its back-testing. Institutions should, in addition to the criteria set out in Article 94(1)(n)(i) and (ii) of Directive 2013/36/EU, use specific criteria including:

• a. evidence of misconduct or serious error by the staff member (e.g. breach of code of conduct and other internal rules, especially concerning risks);
• b. whether the institution and/or the business unit subsequently suffers a significant downturn in its financial performance (e.g. specific business indicators);
• c. whether the institution and/or the business unit in which the identified staff member works suffers a significant failure of risk management;
• d. significant increases in the institution’s or business unit’ s economic or regulatory capital base;
• e. any regulatory sanctions, e.g. punitive, administrative, disciplinary or otherwise, where the conduct of the identified staff member contributed to the sanction.

296.Where malus can only be applied at the time of vesting of the deferred payment, institutions may choose, where possible, to apply clawback after the pay out or vesting of the variable remuneration. The application of malus may not be possible where the derogation under Article 94(3) of Directive 2013/36/EU applies as the requirement to defer variable remuneration is not applied; institutions should ensure that clawback can be applied.

297.Malus and clawback arrangements should lead to a reduction of the variable remuneration where appropriate. Under no circumstances should an explicit ex post risk adjustment lead to an increase of the variable remuneration initially awarded or, where malus or clawback was already applied in the past, to an increase of the reduced variable remuneration.

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