PS12/15 - Strengthening the alignment of risk and reward: new remuneration rules
This policy statement includes feedback, final rules, and guidance in relation to proposals under Consultation Paper 15/14 ‘Strengthening the alignment of risk and reward: new remuneration rules’ published jointly by the PRA and the Financial Conduct Authority (FCA).
The changes to the PRA Rulebook and the FCA Handbook apply to banks, building societies, and PRA-designated investment firms, including UK branches of non-EEA headquartered firms. These rules apply to all Material Risk Takers (MRTs) at these firms, including Senior Managers designated under the Senior Managers Regime (SMR) from 2016.
The final provisions on clawback (of paid variable remuneration) and deferral (of unpaid variable remuneration) will apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016. The rest of the requirements will apply from 1 July 2015.
Summary of content
In light of feedback received, some of the proposals in CP15/14 have been revised. These relate to:
The final policy splits the MRT population subject to five-year deferral according to those responsible for managing risk and all other MRTs. The deferral requirements are now:
- Seven years for senior managers as defined under the Senior Managers Regime;
- Five years for risk managers as defined under the regulatory technical standard (RTS) on identification of MRTs; and
- Three to five years as per the Capital Requirements Directive (CRD) minimum for all other MRTs.
The PRA and FCA will consider further the scope for applying malus (reduction of unpaid, deferred variable remuneration) to bought-out awards, in line with option three under our initial consultation.
Please note: in light of the introduction of the Remuneration Part of the PRA Rulebook, the legacy supervisory statements on malus and proportionality have been amended to include up-to-date references. The PRA wishes to clarify that the content and policy intent of the supervisory statements have not been changed.