On February 29, 2016, the PRA and FCA jointly announced that they will comply with all aspects of the EBA’s Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm’s size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm’s risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.

The PRA and FCA’s joint statement are available at: http://www.bankofengland.co.uk/publications/Documents/news/2016/037.pdf and the EBA’s Guidelines on Sound Remuneration Policies is available at: http://www.eba.europa.eu/documents/10180/1314839/EBA-GL-2015- 22+Guidelines+on+Sound+Remuneration+Policies.pdf.