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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 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 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).
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).
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.
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.
CRD IV data collection on remuneration practices
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.