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Home > Prudential Regulation Authority > Supervisory activities - Remuneration Rules
 

Supervisory activities - Remuneration Rules

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This page sets out: i) policy developments for banking and insurance sectors; ii) remuneration rules for banking; and iii) remuneration requirements for insurers.

Policy developments for banking and insurance sectors

On 20 July, the PRA published Policy Statement 19/17 ‘Responses to CP2/17 ‘Occasional Consultation Paper’’ which includes policy on remuneration.

On 19 June 2017, the PRA updated the notes section of the Remuneration Policy Statement (RPS) Table 7 to notify firms that they may include information in relation to the malus applied to buy-out awards within Part C of the table 7, where appropriate.

On 6 June 2017, the PRA updated the Remuneration Policy Statement (RPS) questionnaires and tables (with the exception of RPS Annex 1 – Malus, and RPS Tables 7 and 8) to reflect submission deadlines and document references. Other changes are:
  • an amendment to question (D.i) within the RPS Level 1 questionnaire relating to the identification of Material Business Units (MBUs); and
  • additional notes on buy-outs within the notes section of the RPS tables.
 

On 25 April 2017, the PRA updated the Remuneration Policy Statement (RPS) Table 8 – Material Risk Takers Exclusions to reflect the submission deadline as prescribed by the European Banking Authority (EBA) guidelines on sound remuneration policies.  Commission Delegated Regulation No 604/2014 sets out regulatory technical standards (RTS) to identify categories of staff whose professional activities have a material impact on the risk profile of firms.  RPS Table 8 now includes an option to exclude individuals under Article 4.1c of the RTS.

On Wednesday 12 April 2017, the PRA published PS7/17 'The PRA's expectations on remuneration' and SS2/17 'Remuneration'

On Thursday 16 February 2017, the PRA published Consultation Paper 2/17 ‘Occasional Consultation Paper’, which includes proposals on remuneration committees and deferral periods.

On 28 September 2016 the PRA published PS26/16 'Buy-outs of variable remuneration' and CP33/16 'The PRA's expectations on remuneration'. These were aligned with the FCA and issued alongside publications on strengthening accountability and whistleblowing; a list of all PRA publications is available here. For information on the FCA publications please see the FCA's website

On 12 August 2016, the PRA published Solvency II: Remuneration requirements - Policy Statement 22/16 and Solvency II: Remuneration requirements - Supervisory Statement 10/16. The Remuneration Policy Statement (RPS) reporting template and Solvency II Staff table are available below under ‘Remuneration requirements for insurers’. 

On 7 April 2016, the PRA published Solvency II: Remuneration requirements - Consultation Paper 13/16 which sought feedback on a draft supervisory statement with the PRA’s expectations for compliance with the key Solvency II remuneration requirements. The consultation closed on Thursday 2 June 2016.
On 29 February 2016, the PRA and Financial Conduct Authority published a statement on compliance with the EBA guidelines on Sound Remuneration Policies. The regulators have notified the European Banking Authority (EBA) that they will comply with all aspects of the EBA Guidelines on Sound Remuneration Policies, except for the provision that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval (the bonus cap), must be applied to all firms subject to the Capital Requirements Directive (CRD). Whilst the PRA and FCA will not comply with this requirement, all CRD-regulated firms must comply with all other aspects of the Guidelines, and all existing domestic requirements. The PRA and FCA are considering whether any rule changes will be required to implement the guidelines and, if necessary, will consult in due course. See the link below for the full statement.
On 13 January 2016, the PRA published Buy-outs of variable remuneration - Consultation Paper 2/16, setting out its proposal for the introduction of a new rule on buy-outs of variable remuneration, relating to the practice whereby firms recruiting staff 'buy-out' deferred bonus awards that have been cancelled by their previous employer. setting out its proposal for the introduction of a new rule on buy-outs of variable remuneration, relating to the practice whereby firms recruiting staff 'buy-out' deferred bonus awards that have been cancelled by their previous employer.
 
On 23 June 2015, the PRA published Strengthening the alignment of risk and reward: new remuneration rules - Policy Statement 12/15 and Remuneration - Supervisory Statement 27/15 following proposals consulted on in Strengthening the alignment of risk and reward: new remuneration rules - Consultation Paper 15/14 published jointly by the PRA and the FCA.  Please note: SS2/17 supersedes Supervisory Statement 27/15 - see Related links. 
 
On 8 April 2014, the PRA issued a letter to Category 1 and 2 firms explaining the procedure to increase the permitted ratio of fixed to variable remuneration (see Letters in Related Links). Please note: SS2/17 supersedes this letter - see Related links. 
 
Readers are referred to Clawback - Policy Statement 7/14 published in July 2014 (see Related Links) and reminded that the finalised rule on clawback came into force on Thursday 1 January 2015.
On 8 December 2014, Andrew Bailey, Deputy Governor of Prudential Regulation and CEO of the PRA, sent a letter to Remuneration level 1 and 2 firms clarifying the PRA’s expectations on material risk takers, guaranteed variable remuneration, fixed remuneration, and clawback (see Letters in Related Links).  Please note: SS2/17 supersedes this letter - see Related links. 

Remuneration rules for banking

The PRA's Remuneration Rules set out the standards that banks, building societies, designated investment firms have to meet when setting pay and bonus awards for their staff. It aims to ensure that firms' remuneration practices are consistent with effective risk management.
Remuneration - Supervisory Statement 2/17 (SS2/17) sets out the PRA’s expectations on proportionality, the application of malus and clawback, other elements of remuneration, and additional expectations of firms. SS2/17 replaces the following remuneration policy documents and letters to firms:
·        Legacy Supervisory Statement (LSS) 8/13 ‘Remuneration standards: the application of proportionality’;
·        SS2/13 ‘PRA expectations regarding the application of malus to variable remuneration’;
·        SS27/15 ‘Remuneration’;
·        ‘Remuneration – PRA expectations’, 8 December 2014; and
·        ‘Procedure to increase the permitted ratio of fixed to variable remuneration’, 8 April 2014.
SS2/17 is intended to be read together with the rules contained in the Remuneration Part of the PRA Rulebook. 
Self-assessment templates and tables
The PRA's Remuneration Policy Statement (RPS) templates allow firms to record remuneration policies, practices and procedures and assess compliance with the Remuneration Rules. The RPS tables allow firms to keep a record of all Material Risk Takers identified for the current performance year.

Remuneration policy statement

​RPS tables

Template - level 1 firms RPS tables - level 1 firms (10.7MB)
Template - level 2 firms RPS tables - level 2 & 3 firms
Template - level 3 firms RPS Table 7 - Malus
RPS Annex 1 - Malus  RPS Table 8 – Material Risk Takers Exclusions

CRD IV data collection on remuneration practices

CRD IV: Data collection on remuneration practices - Policy Statement 11/14 sets out the finalised remuneration data reporting requirements for the PRA Rulebook. Competent authorities are required by the Capital Requirements Directive to collect information on:
  • Remuneration benchmarking.
  • High earners.
Firms are now required to submit their Benchmarking and High Earners Report via the regulatory reporting system GABRIEL which is available as an External Link. 
Instructions for completing both reports are provided below under Key Resources.

Remuneration requirements for insurance

From 1 January 2016, the remuneration requirements in the Solvency II Regulation became directly applicable to Solvency II firms. National Competent Authorities are expected to ensure that Solvency II firms are compliant. The PRA intends to monitor compliance with the regulatory requirements in the same way that it does for PRA rules.

Solvency II: Remuneration requirements - Supervisory Statement 10/16 clarifies the PRA’s expectations of how Solvency II firms should comply with the key Solvency II remuneration requirements such as identification of Solvency II staff (Article 275(1)(d)), deferral (Article 275(2)(c)), and performance measurement (Article 275(2)(b), (d) and (e)) – see Related Links. The Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms to use for the 2016 performance year to demonstrate compliance with the requirements is included in the table below, together with the Solvency II Staff table.

Remuneration Policy Statement for Category 1 and 2 firms​ The Solvency II Staff table​
 
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