On Wednesday 26 July 2017, the Prudential Regulation Authority (PRA) published Strengthening individual accountability in insurance: extension of the Senior Managers and Certification Regime to insurers: Consultation Paper 14/17. The consultation closes on Friday 3 November 2017.
On Thursday 20 July 2017, the PRA published Responses to CP2/17 ‘Occasional Consultation Paper’: Policy Statement 19/17, which includes policy on regulatory references and remuneration.
Senior Managers, Senior Insurance Managers, and Certification Regimes
As part of implementing the recommendations in the final report of the Parliamentary Commission on Banking Standards, in 2014 the PRA and Financial Conduct Authority (FCA) developed new Senior Manager and Certification Regimes that help to support a change in culture at all levels in the banking and insurance industries.
On 7 March 2016, the Senior Managers Regime and Senior Insurance Managers Regime introduced:
- A new Senior Managers Regime (SMR) and Senior Insurance Managers Regime (SIMR) for individuals who are subject to regulatory approval, which will require firms to allocate a range of responsibilities to these individuals and to regularly assess their fitness and propriety.
- A Certification Regime (CR) for banking firms which will require relevant firms to assess the fitness and propriety of certain employees who could pose a risk of significant harm to the firm or any of its customers.
- A new set of Conduct Rules applying to banking and Solvency II firms that includes the responsibility of senior managers for oversight of any delegated activities.
- The first tranche of rules on regulatory references which have been developed further.
Corporate governance: board responsibilities - Supervisory Statement 5/16 identifies, for the boards of firms we regulate, the aspects of governance to which we attach particular importance and to which we may devote particular attention in the course of firm supervision. It is not intended to provide a comprehensive guide for boards of what constitutes good or effective governance. There are more general guidelines for that purpose, for example the UK Corporate Governance Code, published by the Financial Reporting Council.
As set out in our supervisory approach documents, we expect the boards and management of regulated firms to run the business prudently, consistent with the firm’s own safety and soundness and the continuing stability of the financial system.
Our expectations of the collective responsibilities of directors and our policy (requirements and expectations) of individuals should be interpreted as being complementary.
For an overview of the accountability regimes and our expectations of firms, both at individual and board level, please see our key policy documents:
Remuneration rules for banking
Our remuneration rules set out the standards that banks, building societies and 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 sets out our expectations of firms in relation to proportionality, the application of malus and clawback, other elements of remuneration, and additional expectations of firms. This supervisory statement is intended to be read together with the rules contained in the Remuneration Part of the PRA Rulebook.
Applying to vary a proportionality level
A firm or group that believes it should fall into a lower level than the one indicated in Chapter 2 of Remuneration - Supervisory Statement 2/17 may apply to us for individual guidance to vary its proportionality level.
The application will need to be supported by sound reasons explaining why you think a variation in your firm’s proportionality level is justified, with reference to remuneration proportionality rule 5.1 in the PRA Rulebook. Once we have received this information we will determine whether to give your firm guidance to move into a lower level.
To apply to vary your firm’s proportionality level, you should:
- Identify the firms within your group that the remuneration rules apply to directly and determine which proportionality level they fall into, based on Chapter 2 of Remuneration - Supervisory Statement 2/17.
- Prepare an application for individual guidance using the relevant application template below if you believe that a solo firm, the group, or an entity within the group should fall into a lower level than the proportionality level determined by the criteria set out in Table B of Chapter 2 of Remuneration -Supervisory Statement 2/17.
- Provide a separate request for each legal entity for which you are requesting individual guidance.
- Email completed application(s), supporting documents and all relevant contact details to email@example.com. You should copy in your usual supervisory contact where relevant.
- Be prepared to supply further information, if requested.
We have three separate application templates tailored to the three most common types of request. This helps facilitate a consistent decision-making process and to help firms understand the type of information we may require when deciding whether to issue individual guidance. If your request does not fit one of these scenarios, you should contact your usual supervisory contact.
We will not charge firms for making these applications.
If you are applying for individual guidance to change your firm’s proportionality level, you should continue to apply the remuneration rules as relevant for your current proportionality level until we notify you of our decision.
You should not assume that applications to change proportionality level will be accepted.
For groups only: application to move an IFPRU limited license firm engaging in asset management activities from the group level into level 3Template A
For groups only: general application to move a firm from the group level into a lower level (excluding IFPRU limited license asset management firms)
For standalone firms or firms that are the only firm directly caught by the remuneration rules in the group: general level change application
After we receive your application
Once we receive a complete application, we will:
- Log and acknowledge it.
- Discuss the application with your supervisor and other relevant PRA areas.
- Prepare the application for review at the appropriate decision-making forum.
- Inform you of the decision, providing the key reasons for that decision.
We will attempt to process applications and provide a decision within 30 working days of receiving it. However, if the request raises complex issues, it may not be possible to meet this deadline. To allow enough time for us to consider applications, firms should submit applications well in advance of the performance year end.
We will not make our decisions public. If we are minded to decline, we will send you details of the reconsideration process.
Self-assessment templates and tables
Our 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)||RPS tables|
|Template: level 1 firms||RPS tables: level 1 firms (10.7MB)|
|Template: level 2 firms||RPS tables: level 2 and 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 remuneration data reporting requirements for the PRA Rulebook. We are required by the Capital Requirements Directive to collect information on:
- remuneration benchmarking
- high earners.
Firms are required to submit their Benchmarking Report and High Earners Report via the regulatory reporting system GABRIEL.Instructions for completing the Benchmarking Report
Remuneration requirements for insurance
On 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. We intend to monitor compliance with the regulatory requirements in the same way that we do for PRA rules.
Solvency II: Remuneration requirements - Supervisory Statement 10/16 clarifies our 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)).
On 29 November 2017, we published an updated Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms for the 2017 performance year to demonstrate compliance with the requirements, together with the Solvency II staff table.
Please see The National Archives for any material not available on this page.
As set out in Strengthening individual accountability in banking and insurance: amendments and optimisations – PS12/17, on Monday 3 July 2017 the application of the Conduct Rules to notified non-executive directors (NEDs) became effective and will apply to breaches identified on or after that date.
As of Monday 3 July 2017, firms will also be required to notify us of any internal disciplinary action due to breaches of the Conduct Rules against notified NEDs. In Strengthening accountability in banking and insurance: optimisations to the SIMR, and changes to SMR forms – CP8/17 we consulted on changes to the relevant form to submit these notifications (Form L). If your firm needs to make a relevant notification before the revised forms are finalised and published, you should send notifications through alternative means to your usual supervisory contact.