Institutsvergütungsverordnung 5.0-E

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, it should be noted that the Federal Government did not include in the IVV 5.0 draft the suggestion initiated by the Finance Committee of the Bundestag 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) can be largely exempted from the requirements of the InstitutsVergV. Essentially, all institutions with total assets of less than EUR 5 billion that do not fall under any of the case groups in Art. 4 (1) No. 145 lit. c) to e) CRR would be affected by this proposed exemption.

With its suggestion, the Finance Committee took up the supervisory principle of proportionality implemented in Directive 2013/36/EU (as amended by Directive 2024/1619/EU (CRD)) with regard to the remuneration requirements in Articles 92 and 94 CRD, according to which only a certain group of persons (primarily employees identified as risk takers) in institutions should be covered by the supervisory requirements for remuneration systems. The German legislature has not yet followed this supervisory understanding of the EU legislature and, with its general requirements applicable to all institutions within the meaning of Section 1 (1b) KWG regarding the content of remuneration systems and remuneration governance in Sections 1 et. IVV, the scope of application of these substantive requirements has been extended further than the CRD, particularly with regard to remuneration systems.

In its explanatory memorandum to the IVV 5.0-RegE, the Federal Government states that it will examine the Bundesrat's suggestion during its remaining term of office. From a legal methodology perspective, it is interesting to note that the legislative competence for the IVV remains unchanged in Section 25a (6) KWG, which is transferred to the German Federal Ministry of Finance via the statutory authorisation clause contained therein.

New regulations, including remuneration governance for CRD third-country branches, inter alia with regard to management, supervisory bodies and the identification of risk carriers (Sections 53c, 53cg (1) and (2) KWG 2025-RegE):

Compared to the draft bill (see our client alert), the provisions of Section 53cg KWG-2025-RegE on remuneration governance remain virtually unchanged.

In particular, in Section 53(2) No. 3 KWG 2025-RegE, the Federal Government maintains that the supervisory responsibilities of the supervisory body of the legal entity of the insitution apply to the administrative or supervisory body of the CRD third-country branch. The Federal Government has not taken up the criticism expressed in the legislative process based on practical experience and the deletion of Section 53 (2) No. 3 KWG 2025-RegE proposed by the Bundesrat in its statement of 21 November 2025.

If the Bundestag adopts Section 53cg KWG in the version of the KWG 2025-RegE, CRD third-country branches will have to adapt their remuneration governance to these extended supervisory regulations. Section 64c (6) KWG 2025-RegE provides for an (extended) implementation period until 11 January 2027.

Extension of the personal scope of application of the provisions on the remuneration of managing directors to de facto managing directors (Section 1 (2) KWG 2025-E)

Also unchanged from the draft bill, Section 1 (2) KWG 2025-RegE provides for an extension of the supervisory term ‘manager’ to include de facto managers. The Federal Government has not included the further clarification of the term ‘de facto manager’ suggested by practitioners in the legislative process to date (see also our Client Alert), which was also requested by the Bundesrat in its statement of 21 November 2025, but has only announced – briefly – that the draft bill merely ‘implements the requirements of CRD VI without goldplating’.

Practice will therefore have to develop the relevant parameters (in particular with regard to the question of what specific tasks, responsibilities and powers the specific person must fulfil in order to qualify as a de facto manager under supervisory law).

Direct monitoring of the remuneration system for managers in control units by the remuneration control committee and notification of the administrative or supervisory body regarding the identification of risk takers (Section 25d (12) sentence 1 no. 1 KWG 2025-RegE and Section 3 (1) sentence 3 IVV 5.0-RegE)

Unchanged from the RefE, Section 25d (12) sentence 1 no. 1 KWG 2025-RegE stipulates that the remuneration control committee is responsible for directly monitoring the appropriate design of the remuneration systems for the heads of internal control units. The considerations already made in the draft bill for the proper implementation of this regulatory requirement in practice (see also our client alert) can therefore be put to good use here: Maintaining the delineation of responsibilities between the management and the supervisory board as specified in Section 3 IVV – with the management continuing to have supervisory responsibility for the content and implementation of the remuneration systems for the heads of the control units, by including the monitoring of the implementation of the remuneration systems for the heads of the control units by the supervisory body in the meeting calendar with a special emphasis on the respective agenda item for the implementation of the monitoring of the remuneration systems for employees in accordance with Section 25d (1) sentence 1 KWG.

Also unchanged from the RefE, pursuant to Section 3 (1) sentence 3 IVV 5.0-RegE, all CRR institutions will in future involve their supervisory body in the process of identifying risk takers. This statutory extension applies to non-significant CRR institutions, which must now also take into account in their remuneration governance the requirement for management to inform the supervisory body about the process of identifying material risk takers in the supervisory body's meeting calendar (see also our Client Alert). The Federal Government has rejected the deletion of this provision requested by the Federal Council in its statement of 21 November 2025.

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

Unchanged in content from the RefE, the IVV 5.0-RegE stipulates that ESG risks must also be taken into account in the remuneration strategy (Section 4 (4) IVV 5.0-RegE, see also Section 26c KWG 2025-RegE in this context) and that financial and non-financial criteria must be taken into account in the case of performance-related remuneration (Section 5 (1) No. 1a IVV 5.0-RegE). The considerations already made in the draft bill can therefore be used to classify these new regulatory requirements in the IVV in remuneration practice (see also our client alert).

Already corrected in the first government draft of Section 4 s. 3 IVV 5.0 of 10 October 2025, the Federal Government had changed the requirement specified in Section 4 (3) IVV 5.0-RefE to determine the remuneration parameters before the start of the assessment period to a determination at the start of the assessment period – and thus the suggestion to this effect from remuneration practice (see also our Client Alert).

Other updated requirements

The other material changes in the content of the remuneration systems and remuneration governance in the draft bill compared to the current legal situation are also largely identical in content to the provisions of the draft bill:

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-E).
2. Possible expansion of the group of institutions qualifying as qualified non-significant institution (qualifiziertes nicht-bedeutendes Institut, qnbI) within the meaning of Section 1 (3) lit. c) IVV, 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 thereby correcting the editorial error contained in the current version of Section 1 (3) (c) IVV in the implementation of Article 4 (1) No. 145 (c) to (e) CRR (which also refers to exceeding the alternative threshold), which required both thresholds to be met cumulatively. Individual CRR institutions have already been using the alternative assessment to determine whether a bank qualifies as a qnbI in accordance with Section 1 (3) sentence 2 lit. c) IVV, in compliance with EU law pursuant to Article 4 (1) No. 145 CRR.
3. In implementation of the CRD VI requirements, the legislator is making an editorial change to the term ‘control unit’ to ‘internal control function’ in the relevant provisions (including Sections 1 (2a), 2 (11), 3 (3), 7 and 9 KWG 2025-RegE).
4. Restriction of the permissible legal form – with protection of legitimate expectations: Pursuant to Section 2b KWG 2025-RegE, institutions may no longer be operated in the legal form of a general partnership, limited partnership or partnership limited by shares. The Federal Government justifies this future restriction primarily on the basis of the complexity of these partnership legal forms in the context of banking supervisory requirements (in particular with regard to the CRR requirements for the permanence of Common Equity Tier 1 capital instruments). For institutions that are already operating in one of these legal forms at the time of the BRUBEG coming into force, Section 64c (1) KWG 2025-RegE provides for grandfathering.

Violations of sound compensation as an administrative offence or subject to (periodic) penalty payments: Streamlining of the catalogue of fines in Section 56 (2) nos. 11a to 11e KWG 2025-RegE – and continued uncertainty about the responsible person within the meaning of Section 50 (1) sentence 1 KWG 2025-RegE

The federal government is retaining the significant streamlining of the catalogue of administrative offences for violations of sound compensation regulations already included in the government draft of 10 October 2025 in Section 56 (2) Nos. 11a to 11e KWG 2025-RegE.

While the RefE also defined violations of the IVV as administrative offences, the catalogue is now (only) limited to:

1. Section 25a (5) sentence 2 KWG (= exceeding the 100% limit for variable remuneration),
2. Section 25a (5b) KWG (= late or omitted notification of risk-taker status to the employees concerned),
3. Section 25a (5c) KWG (= late or omitted application to the supervisory authority for the application of exemptions under Article 6 (2) Del. Regulation /EU) 2021/923 in the quantitative risk taker analysis),
4. Section 25d (7) sentence 2 KWG with regard to the failure to establish the remuneration control committee or the failure to do so in a timely manner,
5. 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).
   

The Federal Government has not included in the group of addressees for the possible periodic penalty payment pursuant to Section 50 KWG 2025-RegE for repeated violations of, among other things, the sound compensation provisions of the KWG and the IVV, the clarification requested by the legislative process based on remuneration practice and by the Bundesrat in its statement as to which persons should belong to the group of ‘other responsible persons’. To this end, practice must develop suitable criteria for differentiation in remuneration governance and, in particular, lay these down in written rules.

Outlook

The Bundestag session calendar has (so far) scheduled the first reading of the BRUBEG for 17 December 2025. Art. 28 RegE-BRUBEG continues to assume that the KWG will come into force in 2025 and that the key changes in IVV 5.0 will take effect on 11 January 2026. This date is unlikely to be met, given that the Bundestag session weeks will not resume until 12 January 2026. At the same time, the legislative process is still expected to be completed in the first quarter of 2026. We will continue to monitor the further development of the legislative process.