Institutsvergütungsverordnung 5.0

1. Prologue: Continued application of the IVV to all institutions pursuant to Section 1 (1b) KWG – including small, non-complex institutions pursuant to Article 4 (1) No. 145 CRR

As a starting point for the final version of the BRUBEG, it should be noted that the Bundestag has taken up the suggestion initiated by the Finance Committee in the legislative process and taken up by the Bundesrat to examine whether small and non-complex institutions pursuant to Art. 4 (1) No. 145 of Regulation (EU) 575/2013 (as amended by Regulation (EU) 2024/1623, CRR) could be largely exempted from the requirements of the InstitutsVergV (see our Client Alert), did not take into account in IVV 5.0. This exception would have covered all institutions with a maximum balance sheet total of EUR 5 billion on a four-year average that do not fall under any of the case groups in Article 4(1)(145)(c) to (e) CRR. Instead, the InstitutsVergV continues to apply unchanged to all institutions within the meaning of Section 1 (1b) and Section 53 (1) KWG that are subject to Section 25a KWG.

2. Extended regulations for CRD third-country branches on remuneration governance, including the supervisory body (Sections 53c, 53cg KWG 2026)

Compared to the RegE 2.0 (see our client alert) the provisions of Section 53cg KWG-2026 in the final version of the BRUBEG regarding the extended requirements for remuneration governance in CRD third-country branches (in particular regarding the establishment of a remuneration control committee) remain unchanged in terms of content. for which, pursuant to Section 53 (2) No. 3 KWG 2026, the administrative or supervisory body of the parent company will exercise the supervisory authority of the supervisory body in future. CRD third-country branches must adapt their remuneration governance to these extended supervisory regulations.

3. Extension of the personal scope of application of the provisions on the remuneration of managers to de facto managers (Section 1 (2) KWG 2026)

Also unchanged from RegE 2.0, Section 1 (2) KWG 2026 extends the supervisory term ‘manager’ (Geschäftsleiter) to include de facto managers (faktische Geschäftsleiter). The final version of the BRUBEG did not take up the suggestion made during the legislative process to specify the term ‘de facto manager’ (see also here). In this regard, the relevant parameters must be developed in practice (in particular, which specific tasks, responsibilities and powers the specific person must perform in order to qualify as a de facto manager).

4. Direct monitoring of the remuneration system for managers in control functions by the remuneration control committee

According to Section 25d (12) sentence 1 no. 1 KWG 2026, the remuneration control committee will in future also monitor the appropriate design of the remuneration systems for managers of internal control functions. To this end, considerations already made during the legislative process for the proper implementation of this regulatory requirement (see also our Client Alert) can be put to good use by including monitoring by the supervisory body in the meeting calendar with a special emphasis on the agenda item for monitoring the remuneration systems of employees in accordance with Section 25d (1) sentence 1 KWG.

5. Identification of Material Risk Takers (MRT): Notification of the supervisory body (Section 25d (12) sentence 1 no. 1 KWG 2026 and Section 3 (1) sentence 3 IVV 5.0) and its prior notification when applying Article 6 (2) RTS-MRT in significant institutions

Pursuant to Section 3 (1) sentence 3 IVV 5.0, all CRR institutions will in future have to involve their supervisory body in the process of determining risk takers. This legal extension now also covers non-significant CRR institutions, which must now also take into account in their remuneration governance the requirement for the management board to inform the supervisory body about the process of identifying risk takers in the supervisory body's meeting calendar (see also our Client Alert).

For significant institutions (bedeutende Institute), the BRUBEG regulates two process-related changes:

• They must inform employees identified as MRT without delay about their regulatory qualification as MRT (Section 25a (5b) sentence 4 KWG). The previous legal regulation did not contain any time requirements for informing MRTs. In practice, therefore, individual significant institutions that carry out their risk taker analysis for the respective financial year in the fourth quarter of the previous year have only informed MRTs of their risk taker status at the beginning of the financial year – and must now follow up their process of informing risk takers immediately after the risk analysis. Immediate notification of the employees concerned must also be ensured for risk carriers identified during the year.
• If, in its risk analysis, the institution has MRT identified employees with total remuneration amounting to at least one or more of the thresholds specified in Art. 6 (1) Del. VO 2021/923 (RTS MRT 2.0) (EUR 750,000 and, for institutions with more than 1,000 employees, the 0.3% top earners) and wishes to identify individual employees in accordance with Art. 6 (2) RTS-MRT 2.0 , it must inform the supervisory body in advance, before initiating the application procedure with the financial supervisory authority (see our Client Alert) (Section 25a (5b) sentence 6 KWG 2026). The previous provision in Section 25a (5b) sentence 6 KWG only required the supervisory body to be involved without specifying the timing – in this respect, significant institutions must adapt their processes to the amended legal provisions, which previously only required the supervisory body to be notified after the application procedure had been initiated.

6. Remuneration parameters: ESG risks in the remuneration strategy, consideration of financial and non-financial criteria (including ESG criteria) for variable remuneration and determination of remuneration parameters at the beginning of the assessment period (Sections 4 (3) and (4), 5 (1) No. 1a IVV 5.0)

In the final version of the law, the BRUBEG regulations on the content of remuneration systems focus on the three key points already established during the legislative process:

• Section 4 (3) IVV 5.0 clarifies – in legal codification of previous remuneration practice – that the remuneration parameters must be determined at the beginning of the assessment period. In remuneration practice, the corresponding performance parameters for variable remuneration relating to the entire financial year must – as before – be determined by the end of the first quarter of the assessment period at the latest and communicated to employees (= in the case of calendar year reference periods/financial years, by 31 March at the latest). The clarification also covers variable remuneration components relating to the financial year – with corresponding budgets – with shorter reference periods, such as spontaneous recognition bonuses; in this case, the institution must determine the relevant catalogue of discretionary parameters for granting such bonuses at the beginning of the financial year and communicate this to employees (see our Client Alert).
• The remuneration strategy must also take ESG risks into account (Section 4 (4) IVV 5.0). With this provision, the legislator implements the requirements of Art. 74(1)(e), 76(2) and 94(1)(a) CRD VI, according to which ‘remuneration policy and remuneration practice must be consistent with and promote sound and effective risk management, also taking into account the risk appetite of institutions in relation to ESG objectives’.
  To assist with remuneration practices, the legislator explained in the explanatory memorandum to the RegE 1.0 that the statutory provision is intended to reflect current supervisory practice. To this end, remuneration practices can refer, among other things, to the statements made by BaFin in its ‘Questions and Answers on the Institutional Remuneration Regulation’ (FAQ IVV) dated 13 June 2024, in which BaFin announced that it considers the relevant ESG risks and associated ESG objectives primarily in the institution's business and risk strategy and that institutions must derive the relevant ESG-related performance parameters from the ESG strategy set out in the business and risk strategy (see our Client Alert). Even after the addition of Section 4 IVV 5.0 to Section 4 InstitutsVergV, institutions are therefore not required to establish independent remuneration parameters that are separate from their business and risk strategy. Instead, the relevant ESG criteria must be derived from the existing strategic guidelines. At the same time, the explicit standardisation increases the binding nature of the requirement: in future, institutions will have to document even more clearly that relevant ESG risks are actually incorporated into their remuneration parameters. To this end, institutions must take into account the extended requirements for business and risk strategy specified in Section 26c KWG 2026 and evaluate the corresponding remuneration parameters, including the ESG risk plan specified in Section 26d KWG 2026 with the ESG factors specified therein, when determining the remuneration parameters.
• In the case of performance-related remuneration, financial and non-financial criteria (including ESG risks) must be taken into account (Section 5 (1) No. 1a IVV 5.0). The considerations made in the draft bill can be used to classify these new requirements in the InstitutsVergV in remuneration practice (see our client alert).

7. Other updated requirements

The other material requirements of the BRUBEG regarding the content of remuneration systems and remuneration governance include:
(1) Extension of the group of parent companies that, in accordance with Section 27 IVV, are required to develop a group-wide remuneration strategy and monitor its implementation in the subordinate companies to include parent financial holding companies, mixed parent financial holding companies, EU parent financial holding companies and mixed EU parent financial holding companies (Section 1 (1) sentence 3 IVV 5.0).

(2) Possible expansion of the group of institutions to be classified as qualified non-significant institutions (qnbI) within the meaning of Section 1 (3) sentence 2 no. 2 lit. c) InstitutsVergV, according to which a CRR institution will in future already qualify as a qnbI if it meets one of the quantitative thresholds specified in lit. c) (= 2% of total on-balance-sheet and off-balance-sheet assets or 5% of the total value of all derivative positions). The legislator is hereby correcting the editorial error currently contained in Section 1 (3) sentence 2 no. 2 lit. c) InstitutsVergV, which also refers to exceeding the alternative threshold and required both thresholds to be met cumulatively. Individual CRR institutions have already been using the alternative assessment to determine whether an institution qualifies as a qnbI in accordance with Section 1 (3) sentence 2 no. 2 lit. c) InstitutsVergV, in compliance with EU law pursuant to Article 4 (1) no. 145 CRR.

(3) The final version of the BRUBEG no longer contains the editorial change from the term ‘control unit’ to ‘internal control function’ in the relevant provisions (including Sections 1 (2a), 2 (11), 3 (3), 7 and 9 InstitutsVergV, see our Client Alert). The term ‘control unit’ therefore continues to apply to the content of remuneration systems and remuneration governance in accordance with the InstitutsVergV. In addition to the control functions within the meaning of Section 1 (2a) KWG (= internal audit, compliance and risk controlling), also includes back-office staff (Section 2 (11) InstitutsVergV).

(4) Special requirements for key function holders (in particular Section 25e KWG 2026 and extended reporting obligations for large companies within the meaning of Section 1 (1c) KWG 2026). Key function holders pursuant to Section 1 (2b) KWG 2026 are persons who have a significant influence on the management of institutions or financial holding companies or mixed financial holding companies that are not exempt from authorisation pursuant to Section 2f (4) KWG, but who are neither managers nor members of the administrative or supervisory body.

(5) Continued possibility of operating the institution in the legal form of a partnership: In the final version of the BRUBEG, the legislator withdrew the future inadmissibility of the legal form of the institution as a partnership, which had been discussed in the legislative process, and the associated future exclusive option of choosing the legal form of a corporation. In the legislative process, the revised draft bill of the Federal Government of 3 December 2025 in the revised version of Section 2b KWG provided that institutions should no longer be able to operate in the legal form of a general partnership, limited partnership or partnership limited by shares. The final version of Section 2b KWG – unchanged from the current legal situation – only excludes the legal form of a sole trader from the choice of law for the legal entity of the institution.

8. Violations of sound compensation as an administrative offence or as the subject of (periodic) penalty payments: The final catalogue of fines in Section 56 (2) Nos. 11a to 11d KWG 2026 – and uncertainty about the scope of the responsible person within the meaning of Section 50 (1) sentence 1 KWG 2026

The final new catalogue of fines in Section 56 (2) Nos. 11a to 11d KWG 2026 for violations of remuneration systems and remuneration governance stipulates a fine of up to EUR 100,000 (Section 56 (6) KWG) for violations of

• Section 25a (5) sentence 2 KWG (= exceeding the 100% limit for variable remuneration),
• Section 25a (5b) sentence 4 KWG (= late or omitted notification of risk-bearing status to the employees concerned),
• Section 25a (5c) KWG (= late or failure to apply to the supervisory authority for the application of exemptions under Art. 6 (2) RTS-MRT 2.0 in the quantitative risk taker analysis),
• Section 25d (12) sentences 2/3 KWG (= ensuring representation on the remuneration control committee by a member with sufficient expertise in risk management and risk control and, in the case of institutions with a supervisory board subject to co-determination, by the relevant employee representatives).

Period Penalties of up to EUR 50,000 per day for repeated violations of, among other things, the sound compensation provisions of the KWG and the InstitutsVergV may be imposed by BaFin pursuant to Section 50 KWG against (1) managers, (2) members of the administrative or supervisory body, (3) holders of key functions, (4) risk takers and (5) other natural persons, provided that they are responsible for the violation.

The clarification proposed in the legislative process as to which persons should belong to the group of ‘other responsible persons’ (see our Client Alert), was not included by the legislator in the final version of the BRUBEG. In this regard, the practice must develop suitable demarcation criteria in remuneration governance and, in particular, lay them down in written rules.

9. Entry into force of the law and outlook

The Bundesrat may formally object to the BRUBEG (Art. 77 (3) of German Constitution Act (Grundgesetz, GG)). However, given the position already taken by the Bundesrat during the legislative process, such an objection is unlikely. The changes to the content of the remuneration systems and to remuneration governance with regard to the extended requirements for third-country branches and the involvement of the supervisory body in the risk carrier analysis will come into force on 1 April 2026, as will the extended penalty provisions for violations of the statutory sound compensation regulations (Art. 28 (1) BRUBEG). Individual penalty provisions will come into force on 11 January 2027 (Art. 28 (2) BRUBEG). All other extended requirements for remuneration governance will come into force on the day after the publication of the BRUBEG in the Federal Law Gazette (Art. 28 (3) BRUBEG). Institutions must therefore implement these extended regulatory requirements of the BRUBEG into their remuneration systems and remuneration governance during the 2026 calendar year.