PRA publishes PS7/17 and SS2/17 - expectations in respect of remuneration

The PRA has issued a Policy Statement (PS7/17) and a revised Supervisory Statement (SS2/17) following the consultation paper on its expectations in respect of remuneration issued in September of last year (CP33/16).

The revised Supervisory Statement pulls much of the PRA’s previous guidance together into one place and updates it to reflect the introduction of the EBA Guidelines (which are adopted by the PRA except that the PRA will continue to apply proportionality in respect of the bonus cap so that Level 3 firms can disapply it).

The Policy Statement notes various revisions/clarifications that have been made to the Supervisory Statement. The key points to note are:

• Material risk takers (MRTs):

  • The de minimis exemption can be applied to a part-year MRT working less than three months in role who is in receipt of a guaranteed variable remuneration award.
  • The use of an annualised rate when assessing the bonus cap ratio for a new hire relates to the determination of fixed remuneration.
  • Remuneration 15A (buy-outs) applies to all MRTs, including where an individual is within the de minimis exemption.
  • The application of the Remuneration Part to group MRTs outside the UK where they do not have responsibilities in relation to the UK-regulated entity and have reporting lines into other jurisdictions as well as the UK is considered to be extremely rare and, rather than provide guidance, the PRA and Financial Conduct Authority (FCA) will consider instances on a case-by-case basis. The relevant provision in the draft SS has therefore been removed.

• Guarantees:

  • "Lost opportunity" awards made when an individual resigns from their current employer late in one performance year and does not join their new employer until later in the following performance year should be treated as variable remuneration when assessing the bonus cap ratio in the relevant performance period in which the award is made.
  • Notification of guaranteed variable remuneration is not required, but retention awards need prior approval.

• Buy-outs: Firms in proportionality level three can disapply the rules on buy-outs (Remuneration 15A).

• Remuneration committees: the PRA expects all relevant remuneration committees to fulfil the roles and functions required under Remuneration 7.4 and the EBA Guidelines and has amended 7.4 so that it applies to ‘firms’ (rather than "CRR firms"), to ensure it applied to branches of non-EEA firms. 

• Timing: The EBA Guidelines require institutions to have in place on 01 January 2017 the respective governance arrangements; remuneration policies, practices and procedures for 2017. The EBA Guidelines apply to the structure of variable remuneration awards granted for the performance year 2017 onwards.