The PRA and FCA have each issued consultation papers setting out draft updated guidance in respect of the CRDIV remuneration rules.
The proposed updates from the PRA, available here, will consolidate the various existing PRA guidance documents into one, and provide further guidance on the Remuneration Part of the PRA Rulebook, which is applicable to all dual-regulated CRDIV firms.
The FCA consultation, available here, proposes amendments to the FCA guidance on the SYSC 19A Remuneration Code (applicable to CRDIV firms regulated by the FCA only) and the SYSC 19D Remuneration Code (to which dual-regulated CRDIV firms are subject in addition to the Remuneration Part of the PRA Rulebook). The FCA consultation also provides draft "FAQs" addressing certain common issues.
The consultations are open for response until 28 November 2016.
Updates to the PRA's guidance
Some of the main topics covered in the updated PRA guidance are:
- Proportionality: the PRA confirms that firms in Proportionality Level 3 do not have to apply the bonus cap, in line with the previously announced approach taken by the PRA and the FCA of declining to comply with the view of the European Banking Authority ("EBA") that all CRDIV firms must implement the bonus cap.
- Identification of Material Risk Takers ("MRTs"): the PRA provides more detailed guidance on the identification of MRTs who are responsible for initiating credit proposals, who are in a trading capacity or who are in asset management roles. In particular, the PRA focuses on the identification of staff in a trading capacity and states that it expects such staff to be identified if they materially affect the risk profile of the firm even if those staff would not otherwise be identified under the MRT Regulation (Regulation 604/2014). The PRA also provides guidance on the concept of a "material business unit" used in the MRT Regulation.
- Malus and clawback: the PRA provides guidance on the internal processes required to operate malus and clawback provisions.
- Guarantees and buy-outs: the PRA guidance is updated, including to take account of the new process with which dual-regulated firms will be required to comply in order to be able to grant a buy-out. This new requirement will take effect from 1 January 2017 and will require firms to implement processes to ensure compliance, as discussed in our briefing available here.
- PRA guidance on Remuneration Committees and long-term incentive plans is also updated.
Updates to the FCA guidance
Some of the main topics covered in the FCA consultation are:
- Proportionality: As with the PRA, the FCA confirms that Level 3 firms may continue to disapply the bonus capping provision. It is interesting to note that the FCA guidance states that such firms "may" disapply the bonus cap, whereas the PRA guidance indicates that the bonus cap does not apply to such firms.
- Material Risk Takers: The process for identifying MRTs is clarified, including setting out how firms must identify their MRTs before applying proportionality on an individual level.
- Group application: Helpful guidance is included in relation to how the CRDIV remuneration rules need to be applied within a group (i.e., where there are CRDIV and non-CRDIV firms within the same consolidation group) and how MRTs are to be identified in those circumstances. The FCA confirms that a non-CRDIV firm within a group does not have to apply the CRDIV remuneration rules to staff who are identified as code staff under the BIPRU regime rather than the CRDIV regime.
- Performance metrics and risk adjustment: further guidance is provided on how firms should include non-financial metrics in bonus and LTIP awards, along with some examples of best practice. Guidance is also provided on how risk adjustment can be factored in to bonus pools.
- The FCA also provides guidance on which firms constitute "significant firms" required to establish independent Remuneration Committees, and removes the previous FCA guidance on long-term incentive plans on the basis that the updated guidelines from the EBA now cover this in detail.