CP18/21 – Remuneration: Identification of material risk takers

Consultation Paper 18/21
Published on 08 September 2021

Overview

This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposed changes in respect of the applicable requirements on the identification of material risk takers (MRTs) for the purposes of the PRA’s remuneration regime.

The PRA’s proposals would result in:

  • changes to the Remuneration Part of the PRA Rulebook, to insert the criteria for identifying MRTs and relevant definitions (Appendix 1);
  • updates to Supervisory Statement (SS) 2/17 ‘Remuneration’, to reflect the rule changes and the amended process for excluding an employee identified solely based on the quantitative criteria (Appendix 2); and
  • the revocation of Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 (2014 Regulatory Technical Standards (2014 RTS)) as regards PRA-regulated firms (Appendix 3). 

This consultation is relevant to banks, building societies, and PRA-designated investment firms, including third country branches. This CP is not relevant to credit unions or PRA-authorised insurers.

The proposed amendments to the PRA Rulebook and the revocation of the onshored regulatory technical standards in regards to PRA-regulated firms serve the purpose of rationalising the MRT identification regime, removing duplications, and promoting clarity by consolidating all legislative requirements within the PRA Rulebook. The PRA does not expect that firms would incur additional costs as a direct result of the proposals. The PRA would expect that removing duplicative and partially-diverging requirements, and consolidating the MRT identification rules into the PRA Rulebook, would provide clarity for firms and reduce the cost of compliance.

The PRA has considered the interaction between its primary and secondary objectives and the requirements to which the PRA must have regard (the ‘have regards’), including in relation to  the desirability of sustainable growth, the principle that the PRA should exercise its functions transparently, and to the need to use the PRA’s resources in the most efficient and economical way. Overall, the PRA considers that rationalising the regime for identifying MRTs will advance firms’ safety and soundness and ensure that incentives are aligned with prudent risk-taking. 

Rationalising the MRT identification regime would be beneficial for firms by removing duplicative requirements and reducing the burden of complying with two sets of requirements regarding the identification of MRTs. Subject to currency threshold amendments, the substance of the provisions remains the same, and therefore the PRA does not expect that firms will incur additional costs. 

Implementation

The PRA proposes that the implementation date for the changes resulting from this CP would be from the first performance year starting after the publication of final rules, which, subject to the extent and nature of feedback received, is currently planned for Q4 2021. 

Responses and next steps

This consultation closes on Monday 8 November 2021. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP18_21@bankofengland.co.uk.

References related to the UK’s membership of the EU in SS2/17 covered by this CP have been updated as part of these proposals to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.

Consultation Paper 18/21

Consultation end date:
8 November 2021

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