Strengthening the alignment of risk and reward: new remuneration rules

Policy Statement 12/15 | Consultation Paper 15/14

Published on 23 June 2015

Strengthening the alignment of risk and reward: new remuneration rules - PS12/15

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:

Deferral

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.

Buyouts

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. 

PDFPolicy Statement 12/15

PDFPress release

Supervisory Statement 27/15

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. 

Supervisory Statement 2/13 UPDATE

Legacy Supervisory Statement 8/13


Published on 30 July 2014

Strengthening the alignment of risk and reward: new remuneration rules – CP15/14

Background

Further to the final report of the Parliamentary Commission on Banking Standards PCBS, Changing Banking For Good (published in June 2013), CP15/14 sets out the new remuneration rules proposed by the PRA and FCA to strengthen the alignment between risk and reward.

Summary of the proposals covered by the CP

This joint PRA and Financial Conduct Authority (FCA) consultation paper seeks views on proposed changes to the regulators’ rules on remuneration, including:

  • deferral;
  • clawback;
  • bailed-out banks;
  • buy-outs;
  • risk adjustment (PRA only);and
  • the remuneration of non-executive directors.

The PRA is introducing a new Remuneration Part of the Rulebook which will apply, as the Remuneration Code currently does, to all material risk takers in firms that are within scope of the rules.

The changes will affect all banks and building societies, as well as the nine PRA-designated investment firms, which are dual regulated by the PRA and FCA.

The proposals in CP15/14 complement those in CP14/14 Strengthening accountability in banking: a new regulatory framework for individuals.

CP15/14 is also available on the FCA’s website as CP14/14

Responses

The consultation closed on Friday 31 October 2014.

PDFConsultation Paper 15/14

PDFPress release

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