Remuneration: Identification of material risk takers

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Remuneration

All firms regulated by the PRA are required to identify Material Risk Takers, regardless of their size and must have adequate procedures and policies, including the risk assessments, allowing a proportionate identification of MRTs.

This requirement and associated rules have been clarified in several pieces of the PRA’s policy and supervisory statements. This has been brought about by the revocation of the PRA version of Commission Delegated Regulation (EU) No604/2014 of 2017 RTS (2014 RTS) due to the UK’s withdrawal from the EU.

The changes are as follows:

  1. Updated criteria and relevant definitions for identifying MRTs in the Policy Statement PS 28/21 ‘Remuneration: Identification of material risk takers’
  2. Updated wording for qualitative and quantitative criteria to identify MRTs in the Remuneration Part of the PRA Rulebook, the Certification Part of the PRA Rulebook and the Supervisory Statement SS28/15 ‘Strengthening individual accountability in banking’
  3. Updates to Supervisory Statement SS2/17 ‘Remuneration’ to reflect the process for excluding an employee identified as an MRT solely based on the quantitative criteria.

Integration of the revoked EU Regulation in the Remuneration Part of the PRA Rulebook

Quantitative and qualitative criteria set in the 2014 RTS have been integrated into the Remuneration Part of the PRA Rulebook.

The PRA now clarifies that firms will have to identify MRTs using qualitative criteria, for example, if they hold managerial responsibility for legal affairs, finance, human resources, information technology, information security amongst others.

When identifying an employee that could have a material impact on a firm’s risk profile, the following quantitative criteria must be met:

  • an employee is awarded in or for the preceding performance year a total remuneration equal or greater than £660,000, or
  • employees that are in the 0.3% of the highest awarded total remuneration in or for the preceding performance year (this is subject to the firm only if there are over 1,000 employees)

There have also been minor wording updates to the definition of ‘significant risk taker’ to the Certification Part of the PRA Rulebook which will come into force on 1 March 2022.

The PRA will expect firms to comply with the Remuneration Part, which is broader than the scope of individuals in the Certification Part.

Updated Supervisory Statement SS2/17 ‘Remuneration’

SS2/17 published in December 2021 replaces previous policy documents and letters to firms. The PRA details in this SS its expectation that all firms are required to embed remuneration policies that identify and manage all aspects of remuneration that could impact the effective risk management of the firm, eliminate incentives for excessive risk-taking, and ensure alignment of employee incentives with long term objectives of the business.

The PRA, to provide greater certainty on the value of monetary thresholds, will expect firms to redenominate currency references from EUR to GBP by using the average of daily GBP/EUR spot exchange rates over a 12-month period.

The rules will apply to relevant banks, building societies and PRA-designated investment firms, including third-country branches. 

References

For further information on the Policy Statement and Consultation Paper, please see the following:

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