PRA statement on updating requirements on the identification of ‘material risk takers’

This statement provides an update on the PRA’s approach to updating the applicable requirements on the identification of ‘material risk takers’ (MRTs), and its position concerning applications for exclusion of MRTs in the current performance year. It should be read in conjunction with Chapter 3 of the Remuneration Part of the PRA Rulebook, and Supervisory Statement 2/17 ‘Remuneration’ (Chapter 3).
Published on 25 May 2021

As set out in paragraphs 3.4 and 3.5 of Policy Statement (PS) 26/20 ‘Capital Requirements Directive V (CRD V)’, in light of the EU having not adopted an updated version of the MRT Regulation before the transposition of CRD V on Monday 28 December 2020, the revised draft of the MRT Regulatory Technical Standards (RTS) published by the European Banking Authority in June 2020 is currently used as the basis for the application of the Remuneration Part of the PRA Rulebook. As PS26/20 also set out, this means that there is a discrepancy between MRT RTS 604/2014, which continues to apply in UK law, and the revised draft MRT RTS, which applies in determining the application of the Remuneration Part of the PRA Rulebook.

The PRA intends to consult on updating this position later this year.

During the intervening period, the PRA is of the view that the current position is as follows:

  • MRT RTS 604/2014 continues to apply (together with the technical changes made to it as part of the onshoring process) and be binding in its entirety. Accordingly, firms must continue to comply with it.
  • In addition, firms must also apply the revised draft MRT RTS for the purposes of determining the individuals to which the requirements of the Remuneration Part of the PRA Rulebook apply.
  • In general, the application of the revised draft MRT RTS by firms will result in the identification of a broader scope of individuals than the application of MRT RTS 604/2014. Therefore, in applying the revised draft MRT RTS, the PRA considers that firms will also meet the requirements of MRT RTS 604/2014 (subject to the point set out below).
  • In any instance where MRT RTS 604/2014 requires firms to identify individuals who do not meet any of the criteria under the revised draft MRT RTSfootnote [1], the PRA considers that firms do not need to apply the requirements of the Remuneration Part of the PRA Rulebook in relation to those individuals solely on the basis that they meet the criteria of MRT RTS 604/2014 if the firm does not consider that the professional activities of said individuals have a material impact on the firm’s risk profile.
  • The PRA reminds firms that it considers the revised draft MRT RTS to be a minimum standard, and that firms will need to assess whether an individual’s professional activities have a material impact on the firm’s risk profile for the purposes of the application of Rule 3.1, even if they do not fall within any of the mandatory criteria established under that rule or the revised draft MRT RTS.
  • The PRA is reviewing the templates that may be used by firms on a voluntary basis to communicate to the PRA information on their MRTs’ identification and exclusion (also known as ‘Remuneration Policy Statement (RPS) tables 1a, 2 and 8’), as set out in Supervisory Statement 2/17 (Chapter 3). Amended templates for Stage 1 and 2 submissions will be published this summer, and the remaining templates by November this year.
  • The PRA notes that if firms wish to exclude an MRT in line with the criteria set out in Rule 3.1 and Article 7 of the revised draft MRT RTS, firms have to apply to the PRA for a waiver under Section 138A of the Financial Services and Markets Act 2000, including the information submitted using the RPS templates. The PRA will provide more details on how firms may apply for such waivers when it publishes the updated templates.
  • The PRA recognises that firms with a fiscal year-end of 31 December may require additional time to submit the RPS tables on MRT Identification and Exclusion (tables 1a, 2, 8), the RPS Questionnaires and Annex 1: malus. In this instance, firms may therefore submit them by Thursday 30 September. Please note, this is only applicable for the 2021/22 remuneration round.

To the extent that firms have further questions or concerns relating to this matter, they should contact their supervisors.

  1. For example MRT RTS 604/2014 requires firms to identify individuals responsible for initiating credit proposals, or structuring credit products, which can result in credit risk exposures exceeding €5 million and 0.5% of CET1.

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