Update 12 April 2017
SS27/15 has been superseded by SS2/17
Update 23 June 2015
SS2/13 has been updated primarily to reflect the references in the new Remuneration Part of the PRA Rulebook. The content and policy intent of the supervisory statement has not been changed.
Published on 28 October 2013
This Supervisory Statement clarifies how the Prudential Regulation Authority (PRA) expects firms subject to the Remuneration Code in SYSC19A of the Handbook to comply with the requirements on the use of malus in Principle 12(h).
The effective and meaningful use of performance adjustment, including malus, is necessary to align remuneration policy with risk taking. This is acknowledged both in CRD IV, which establishes that “up to 100 % of the total variable remuneration shall be subject to malus or clawback arrangements”, and the Parliamentary Commission on Banking Standards’ (PCBS) final report.
The Supervisory Statement sets our expectations in several areas including the:
- wording in employment contracts and firms’ remuneration policies;
- potential scope of application of malus to individuals and groups;
- relationship between the timing of a risk management failure or misbehaviour and the firm’s ability to apply malus;
- procedure for considering malus cases; and
- process for calculating the amount of variable remuneration.