The PRA has issued a draft Supervisory Statement, containing guidance on how Solvency II remuneration rules are to be applied (Draft Guidance).
The Draft Guidance is, in certain respects, materially more onerous than may have been expected. In particular, it provides that firms must ensure that at least 40% of the variable remuneration of senior staff and other "risk takers" is deferred for at least 3 years, allowing all or part of the deferred element to be withheld
Other key points for firms arising from the Draft Guidance, which can be found in PRA consultation paper CP13/16, include:
- clarification of the PRA's expectations of how firms should comply with Solvency II remuneration requirements on a group-wide basis;
- the process to be implemented to identify those members of staff covered by the more onerous of the Solvency II remuneration rules (including deferral requirements); and
- PRA expectations for firms' approaches to performance measurement, to ensure that levels of remuneration adequately reflect risk.
Our briefing, which can be found here, reviews the Draft Guidance in detail. It draws on our experience of advising banks, building societies and asset managers on similar regimes to discuss the practical issues which insurers and reinsurers will face in complying with the Solvency II requirements.
Solvency II firms need to consider the Draft Guidance and whether to respond to the PRA's consultation. Firms also need to look carefully at their existing approach to remuneration and consider whether it meets PRA expectations. If not, a new remuneration policy may need to be implemented or changes made to bonus and other reward arrangements.
CP13/16 was issued on 7 April 2016. The deadline for comments is 2 June