PRA Issues Statement on Standards for Identifying Material Risk-Takers

As set out in paragraphs 3.4 and 3.5 of the policy statement PS 26/20 on the Capital Requirements Directive 5 (CRD5), in light of the EU having not adopted an updated version of the material risk-takers regulation before the transposition of CRD V on December 28, 2020, the revised draft of the regulatory technical standards on material risk-takers (MRT RTS), which EBA published in June 2020, is currently used as the basis for the application of the Remuneration Part of the PRA Rulebook. As PS26/20 also set out, this means that there is a discrepancy between standards on material risk-takers (MRT RTS 604/2014), which continue to apply in UK law, and the revised draft MRT RTS, which apply in determining the application of the Remuneration Part of the PRA Rulebook. Thus, PRA intends to consult on updating this position later this year. However, during the intervening period, PRA is of the view that the current position is as follows:

• MRT RTS 604/2014 continue to apply (together with the technical changes made to it as part of the onshoring process) and be binding in its entirety. Accordingly, firms must continue to comply with it.
• In addition, firms must also apply the revised draft MRT RTS for the purposes of determining the individuals to which the requirements of the Remuneration Part of the PRA Rulebook apply.
• In general, the application of the revised draft MRT RTS by firms will result in the identification of a broader scope of individuals than the application of MRT RTS 604/2014. Therefore, in applying the revised draft MRT RTS, PRA considers that firms will also meet the requirements of MRT RTS 604/2014.
• In any instance where MRT RTS 604/2014 requires firms to identify individuals who do not meet any of the criteria under the revised draft MRT RTS, PRA considers that firms do not need to apply the requirements of the Remuneration Part of the PRA Rulebook in relation to those individuals solely on the basis that they meet the criteria of MRT RTS 604/2014 if the firm does not consider that the professional activities of said individuals have a material impact on the firm’s risk profile.
• PRA reminds firms that it considers the revised draft MRT RTS to be a minimum standard and that firms will need to assess whether an individual’s professional activities have a material impact on the firm’s risk profile for the purposes of the application of Rule 3.1, even if they do not fall within any of the mandatory criteria established under that rule or the revised draft MRT RTS.
• PRA is reviewing the templates that may be used by firms on a voluntary basis to communicate to the PRA information on their material risk-takers’ identification and exclusion, as set out in SS2/17 (Chapter 3). Amended templates for Stage 1 and 2 submissions will be published this Summer and the remaining templates by November this year.
• PRA notes that if firms wish to exclude a material risk-taker in line with the criteria set out in Rule 3.1 and Article 7 of the revised draft MRT RTS, firms have to apply to PRA for a waiver under Section 138A of the Financial Services and Markets Act 2000, including the information submitted using the Remuneration Policy Statement templates. PRA will provide more details on how firms may apply for such waivers when it publishes the updated templates.
• PRA recognizes that firms with a fiscal year-end of December 31 may require additional time to submit the Remuneration Policy Statement tables on MRT Identification and Exclusion (tables 1a, 2, 8), the Remuneration Policy Statement Questionnaires and Annex 1: malus. In this instance, firms may, therefore, submit them by September 30. Please note, this is only applicable for the 2021/22 remuneration round.

Related Link: Statement

Keywords: Europe, UK, Banking, Regulatory Technical Standards, Remuneration, CRD 5, Material Risk Takers, PRA