PRA Proposes to Correct an Error in Remuneration Part of the Rulebook
PRA proposed, via the consultation paper CP9/21, to correct an error in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook. The proposals in CP9/21, the comment period for which closes on May 26, 2021, would result in changes to the Remuneration Part of the PRA Rulebook and the supervisory statement SS2/17 on remuneration. PRA proposed that implementation of the changes resulting from CP9/21 would take effect on publication of the final policy. To avoid retroactivity, PRA proposed that firms would not be required to apply the corrected definition to remuneration that has been paid, vested, or is subject to an obligation to pay or vest created before that date, in respect of the first performance year beginning on or after December 29, 2020. PRA expects to publish the final policy in the second quarter of 2021.
The proposal is intended to align the "higher paid material risk taker" definition with the intention of PRA of continuing the approach outlined in SS2/17 on remuneration. PRA identified an error in the definition of "higher paid material risk taker" in Rule 1.3 in the Remuneration Part of the PRA Rulebook. The error was introduced as part of the policy statement PS29/20 on the fifth Capital Requirements Directive (CRD5). The erroneous definition states that "higher paid material risk taker" is defined as an individual whose annual variable remuneration exceeds 33% of their total remuneration and whose total remuneration exceeds GBP 500,000. This implies that an individual would need to meet both of these conditions to be considered a "higher paid material risk taker." However, PRA intended the definition to capture individuals who meet either of these conditions. Therefore, CP9/21 is proposing to change the "and" in the definition to "or." Thus, the correct text should convey that an individual should be treated as a “higher paid material risk taker” where either their annual variable remuneration exceeds 33% of their total remuneration, or their total remuneration exceeds GBP 500,000.
CP9/21 also proposes to make a consequential amendment to Table G in SS2/17, to reflect the updated definition in the table heading. The proposals set out in CP9/21 have been designed in the context of the UK having left EU and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation refer to the version of that legislation which forms part of retained EU law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework.
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Keywords: Europe, UK, Banking, Remuneration, PRA Rulebook, CRD5, Basel, SS2/17, CP9/21, Operational Risk, PRA
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