PRA Consults on Requirements to Identify Material Risk-Takers
The Prudential Regulatory Authority (PRA), via the consultation paper CP18/21, proposed changes to the applicable requirements on the identification of material risk-takers for the purposes of the remuneration regime. The proposals would result in changes to the Remuneration Part of the PRA Rulebook (Appendix 1), updates to the supervisory statement SS2/17 on remuneration (Appendix 2), and revocation of the EU Regulation 604/2014 (Appendix 3). PRA proposed that the implementation date for the changes resulting from this CP18/21 would be from the first performance year starting after the publication of final rules, which, subject to the extent and nature of feedback received, is planned for the fourth quarter of 2021. This consultation closes on November 08, 2021.
Individuals identified as material risk-takers are subject to all PRA remuneration rules. Material risk-takers are subject to the application of PRA rules derived from the EU Capital Requirements Directive (CRD) IV. These requirements were previously based on the PRA rules and the EU Regulation 604/2014 supplementing CRD IV with regard to the regulatory technical standards for qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile. The policy proposals included in CP18/21 are intended to:
- revoke the application of the onshored version of Regulation (EU) No 604/2014 as regards to PRA-regulated firms
- insert the provisions of the Material Risk Taker Regulation (as adopted by the European Commission on June 09, 2021) into the Remuneration Part of the PRA Rulebook, without substantive policy amendments.
- make technical drafting fixes
- update SS2/17 to reflect the rule changes and the amended process for excluding an employee identified solely based on the quantitative criteria.
This consultation is relevant to banks, building societies, and PRA-designated investment firms, including third-country branches. CP18/21 is not relevant to credit unions or PRA-authorized insurers. The proposed amendments to the PRA Rulebook and the revocation of the onshored regulatory technical standards with regard to the PRA-regulated firms are aimed at rationalizing the material risk-taker identification regime, removing duplications, and promoting clarity by consolidating all legislative requirements within the PRA Rulebook. PRA does not expect that firms would incur additional costs as a direct result of the proposals. PRA would expect that removing duplicative and partially diverging requirements and consolidating the rules for identification of material risk-takers into PRA Rulebook would provide clarity to firms and reduce the cost of compliance.
Related Links
Comment Due Date: November 08, 2021
Effective Date: Q4 2021 (Proposed)
Keywords: Europe, UK, Banking, Investment Firms, CRD IV, Basel, Remuneration, Operational Risk, Material Risk-Takers, Governance, PRA Rulebook, ESG, PRA
Related Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
