Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to:

1. (1) a CRR firm in relation to its;
1. (a) UK activities;
2. (b) passported activities carried on from a branch in another EEA State; and
3. (c) other activities wherever they are carried on, in a prudential context; and
2. (2) a third country CRR firm in relation to its activities carried on from an establishment in the UK.

1.2

This Part applies:

1. (1) in relation to regulated activities;
2. (2) in relation to the regulated activity, specified in Article 14 of the Regulated Activities Order (Dealing in investments as principal), disregarding the exclusion in Article 15 of the Regulated Activities Order (Absence of holding out etc.);
3. (3) in relation to ancillary activities and (in relation to MiFID business) ancillary services;
4. (4) in relation to the carrying on of unregulated activities in a prudential context; and
5. (5) taking into account activities of other members of a group of which the firm is a member.

1.3

(1) In this Part, the following definitions shall apply:

accounting reference date

means

1. (1) (in relation to a body corporate incorporated in the UK under the Companies Acts) the accounting reference date of that body corporate determined in accordance with section 391 of the Companies Act 2006; or
2. (2) (in relation to any other body) the last day of its financial year.

buy-out

means that part of an employee’s variable remuneration:

1. (a) agreed in any contracts relating to the commencement of employment with, or provision of services to, a new firm; and
2. (b) the aggregate value of which is less than or equal to such unvested variable remuneration:
1. (i) in the employee’s contracts relating to the employee’s employment with, or provision of services to, a previous firm, and
2. (ii) which terminated when the employee left employment with, or ceased to provide services to, the previous firm.

buy-out notice

means the information provided by a firm to a previous firm in accordance with 15A.5.

consolidation group entity

means an institution or financial institution which is, in relation to a CRR firm responsible for consolidation:

1. (1) the CRR firm responsible for consolidation;
2. (2) a subsidiary of the CRR firm responsible for consolidation; or
3. (3) a subsidiary of the EEA parent financial holding company or EEA parent mixed financial holding company by which the CRR firm responsible for consolidation is controlled.

CRR firm responsible for consolidation

means a CRR firm which is either:

1. (1) an EEA parent institution; or
2. (2) controlled by an EEA parent financial holding company or by an EEA parent mixed financial holding company and to which supervision on a consolidated basis by the PRA applies in accordance with Article 111 of CRD.

high earner

means an employee (of a firm or of any consolidation group entity) whose total annual remuneration is €1 million or more per year or its equivalent in another currency determined by reference to the conversion rate applicable to the corresponding High Earners Report under Chapter 18.

High Earners Report

means the report by which a firm provides to the PRA the information required in Chapter 18.

material risk taker

has the meaning given in 3.1.

Material Risk Takers Regulation

means Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile.

private person

has the meaning given by regulation 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001.

reduction notice

means a notice provided to a firm by a previous firm in accordance with 15A.9(3).

Remuneration Benchmarking Information Report

means the report by which a firm provides to the PRA the information required in Chapter 17.

remuneration requirements

means the requirements in 6 to 15A.

remuneration statement

means a statement provided to an employee by a previous firm in accordance with 15A.7.

share

means the investment specified in Article 76 of the Regulated Activities Order (Shares etc).

total assets

means:

1. (1) in relation to a CRR firm or an EEA bank, its total assets as set out in its balance sheet on the relevant accounting reference date; and
2. (2) in relation to a third country CRR firm, the total assets of the third country CRR firm as set out in its balance sheet on the relevant accounting reference date that cover the activities of the branch operation in the UK.

(2) In this Chapter, references to rules in 15 in relation to a firm shall be read on the basis that references to employment with or the provision of services to the firm, include references to employment with or the provision of services to a previous firm to which the buy-out relates.

[Note: CRD]

1.4

Unless otherwise defined, any italicised expression used in this Part and in the CRD or CRR has the same meaning as in the CRD or CRR.

[Note: CRD and CRR]

2.1

Subject to 2.2 to 2.4, a firm must apply the remuneration requirements in relation to:

1. (1) remuneration awarded, whether pursuant to a contract or otherwise, on or after 1 January 2011;
2. (2) remuneration due on the basis of contracts concluded before 1 January 2011 which is awarded or paid on or after 1 January 2011; and
3. (3) remuneration awarded, but not yet paid, before 1 January 2011, for services provided in 2010.

2.2

A firm must apply 15.9(3) and 15.10 in relation to remuneration awarded for services provided or performance from the year 2014 onwards, whether due on the basis of contracts concluded before, on or after 31 December 2013.

[Note: Art. 162(3) of the CRD]

[Note: CRD]

2.3

A firm must apply 15.17(1)(b) and (c), 15.20(2), (3) and (4), 15.23 and 16.1(3) in relation to remuneration awarded in relation to a performance year starting on or after 1 January 2016.

2.4

A firm must apply 15A.2 to 15A.11 in relation to any buy-out agreed into on or after 1 January 2017.

3.1

A firm must, save where otherwise stated, apply the requirements of this Part in relation to a person (a “material risk taker”) who is:

1. (1) an employee of a CRR firm whose professional activities have a material impact on the firm’s risk profile, including any employee who is deemed to have a material impact on the firm’s risk profile in accordance with criteria set out in articles 3 to 5 of the Material Risk Takers Regulation; or
2. (2) subject to 3.2, an employee of a third country CRR firm who would fall within 3.1(1) if it had applied in relation to him or her.

[Note: Material Risk Takers Regulation]

3.2

A third country CRR firm may deem an employee not to be a material risk taker where:

1. (1) the employee:
1. (a) would meet any of the criteria in Article 4(1) of the Material Risk Takers Regulation,
2. (b) would not meet any of the criteria in Article 3 of the Material Risk Takers Regulation; and
3. (c) was awarded total remuneration of less than €750,000 in the preceding financial year; and
2. (2) the third country CRR firm determines that the professional activities of the employee do not have a material impact on its risk profile on the grounds described in Article 4(2) of the Material Risk Takers Regulation.

[Note: Material Risk Takers Regulation]

3.3

Where a third country CRR firm deems an employee not to be a material risk taker as set out in 3.2, it must notify the PRA, applying exactly the approach described in Article 4(4) of the Material Risk Takers Regulation.

[Note: Material Risk Takers Regulation]

3.4

A firm must maintain a record of its material risk takers in accordance with the Record Keeping Part.

[Note: Material Risk Takers Regulation]

3.5

A firm must take reasonable steps to ensure that its material risk takers understand the implications of their status as such, including the potential for remuneration which does not comply with certain requirements of this Part to be rendered void and recoverable by the firm.

[Note: Material Risk Takers Regulation]

4.1

A firm must apply the requirements at group, parent undertaking and subsidiary undertaking levels, including those subsidiaries established in a country or territory which is not in an EEA State.

[Note: Art. 4(1)(16) of the CRR]

4.2

A firm must:

1. (1) ensure that the risk management processes and internal control mechanisms of the other members of the group of which it is a member comply with the obligations set out in this Part on a consolidated basis or sub-consolidated basis; and
2. (2) ensure that compliance with (1) enables the members of the group of which it is a member to have arrangements, processes and mechanisms that are consistent and well integrated and that any data relevant to the purpose of supervision can be produced.

[Note: Arts. 92(1) and 109 of the CRD]

[Note: CRD]

5.1

A firm must comply with this Part in a way and to the extent that is appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities, when establishing and applying the total remuneration policies for material risk takers.

5.2

5.1 does not apply to the requirement in 7.4 for significant firms to have a remuneration committee.

[Note: Art. 92(2) of the CRD]

[Note: CRD]

6.1

In this Chapter, 6.2 and 6.5 apply to firms in relation to firms’ remuneration policies, practices and procedures generally, not only in relation to material risk takers.

6.2

A firm must establish implement and maintain a remuneration policy, practices and procedures which are consistent with and promote sound and effective risk management and do not encourage risk-taking that exceeds the level of tolerated risk of the firm.

[Note: Arts. 74(1) and 92(2)(a) of the CRD]

[Note: CRD]

6.3

A firm must ensure that its remuneration policy is in line with the business strategy, objectives, values and long-term interests of the firm.

[Note: Art. 92(2)(b) of the CRD]

[Note: CRD]

6.4

A firm must ensure that its remuneration policy includes measures to avoid conflicts of interest.

[Note: Art. 92(2)(b) of the CRD]

[Note: CRD]

6.5

A firm must ensure that its remuneration policies, practices and procedures, including performance appraisal processes and decisions, are clear and documented.

7.1

In this Chapter, 7.4 applies generally, not only in relation to material risk takers.

7.2

A firm must ensure that its management body in its supervisory function adopts and periodically reviews the general principles of the remuneration policy and is responsible for overseeing its implementation.

[Note: Art. 92(2)(c) of the CRD and Standard 1 of the FSB Compensation Standards]

[Note: CRD]

7.3

A firm must ensure that the implementation of the remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the management body in its supervisory function.

[Note: Art. 92(2)(d) of the CRD and Standard 1 of the FSB Compensation Standards]

[Note: CRD]

7.4

A firm that is significant in terms of its size, internal organisation and the nature, scope and complexity of its activities must establish a remuneration committee, and ensure that the committee:

1. (1) is constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity;
2. (2) comprises a chairman and members who are members of the management body who do not perform any executive function in the firm;
3. (3) is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of the firm and which are to be taken by the management body; and
4. (4) takes into account, when preparing such decisions, the long-term interests of shareholders, investors and other stakeholders in the firm as well as the public interest.

[Note: Art. 95 of the CRD and Standard 1 of the FSB Compensation Standards]

[Note: CRD]

7.5

A firm that maintains a website must explain on the website how the firm complies with this Part.

[Note: Art. 96 of the CRD]

[Note: CRD]

8.1

A firm must ensure that employees engaged in control functions:

1. (1) are independent from the business units they oversee;
2. (2) have appropriate authority; and
3. (3) are remunerated:
1. (a) adequately to attract qualified and experienced employees; and
2. (b) in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.

[Note: Art. 92(2)(e) of the CRD and Standard 2 of the FSB Compensation Standards]

[Note: CRD]

8.2

A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the remuneration committee referred to in 7.4, or, if such a committee has not been established, by the governing body in its supervisory function.

[Note: Art. 92(2)(f) of the CRD]

[Note: CRD]

9.1

A firm must ensure that total variable remuneration does not limit the firm's ability to strengthen its capital base.

[Note: Art. 94(1)(c) of the CRD and Standard 3 of the FSB Compensation Standards]

[Note: CRD]

10.1

A firm that benefits from exceptional government intervention must ensure that:

1. (1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;
2. (2) it restructures remuneration in a manner aligned with sound risk management and long-term growth, including when appropriate establishing limits to the remuneration of members of its management body; and
3. (3) no variable or discretionary remuneration of any kind is paid to members of its management body unless this is justified.

[Note: Art. 93 of the CRD and Standard 10 of the FSB Compensation Standards]

[Note: CRD]

11.1

1. (1) A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components:
1. (a) includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and
2. (b) takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings.
2. (2) A firm must ensure that the allocation of variable remuneration components within the firm also takes into account all types of current and future risks.

[Note: Arts. 94(1)(j) and (k) of the CRD and Standard 4 of the FSB Compensation Standards]

[Note: CRD]

11.2

A firm must have a clear and verifiable mechanism for measuring performance, with risk adjustment applied thereafter in a clear and transparent manner.

11.3

A firm must base assessments of financial performance used to calculate variable remuneration components or pools of variable remuneration components principally on profits. To determine profits for this purpose, a firm (other than a branch) must adjust its fair valuation accounting model profit figure by the incremental change in its regulatory prudent valuation adjustment figure across the relevant performance period.

11.4

A firm’s risk-adjustment approach must reflect both ex-ante adjustment (which adjusts remuneration for intrinsic risks that are inherent in its business activities) and ex-post adjustment (which adjusts remuneration for crystallisation of specific risk events).

11.5

A firm must not base the ex-ante risk adjustments referred to in 11.4 on revenue-based measures, except as part of a balanced, risk-adjusted scorecard.

11.6

A firm must ensure that its total variable remuneration is generally considerably contracted where subdued or negative financial performance of the firm occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements.

[Note: Art. 94(1)(n) of the CRD and Standard 5 of the FSB Compensation Standards]

[Note: CRD]

12.1

A firm must ensure that:

1. (1) its pension policy is in line with its business strategy, objectives, values and long-term interests;
2. (2) when an employee leaves the firm before retirement, any discretionary pension benefits are held by the firm for a period of five years in the form of instruments referred to in 15.15; and
3. (3) when an employee reaches retirement, discretionary pension benefits are paid to the employee in the form of instruments referred to in 15.15 and subject to a five-year retention period.

[Note: Art. 94(1)(o) of the CRD]

[Note: CRD]

13.1

1. (1) A firm must ensure that its employees undertake not to use personal hedging strategies to undermine the risk alignment effects embedded in their remuneration arrangements.
2. (2) A firm must ensure that its employees undertake not to use remuneration-related or liability-related contracts of insurance to undermine the risk alignment effects embedded in their remuneration arrangements.
3. (3) A firm must maintain effective arrangements designed to ensure that employees comply with their undertaking.

[Note: Art. 94(1)(p) of the CRD and Standard 14 of the FSB Compensation Standards]

[Note: CRD]

14.1

A firm must ensure that variable remuneration is not paid through vehicles or methods that facilitate non-compliance with obligations arising from CRR, CRD or this Part.

[Note: Art. 94(1)(q) of the CRD]

[Note: CRD and CRR]

15.1

A firm must ensure that the structure of an employee's remuneration is consistent with and promotes effective risk management.

15.2

A firm must ensure that its remuneration policy makes a clear distinction between criteria for setting:

1. (1) basic fixed remuneration that primarily reflects an employee's professional experience and organisational responsibility as set out in the employee's job description and terms of employment; and
2. (2) variable remuneration that reflects performance in excess of that required to fulfil the employee's job description and terms of employment and that is subject to performance adjustment in accordance with this Part.

[Note: Art. 92(2)(g) of the CRD]

[Note: CRD]

15.3

A firm must not award variable remuneration to a non-executive director in relation to his or her role as such.

15.4

A firm must ensure that where remuneration is performance-related:

1. (1) the total amount of remuneration is based on a combination of the assessment of the performance of:
1. (a) the individual;
2. (b) the business unit concerned; and
3. (c) the overall results of the firm; and
2. (2) when assessing individual performance, financial as well as non-financial criteria are taken into account.

[Note: Art. 94(1)(a) of the CRD and Standard 6 of the FSB Compensation Standards]

[Note: CRD]

15.5

A firm must clearly explain the performance assessment process referred to in 15.4 to relevant employees.

15.6

A firm must ensure that the assessment of performance is set in a multi-year framework in order to ensure that the assessment process is based on longer-term performance and that the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the firm and its business risks.

[Note: Art. 94(1)(b) of the CRD]

[Note: CRD]

15.7

A firm must ensure that guaranteed variable remuneration is not part of prospective remuneration plans. A firm must not award, pay or provide guaranteed variable remuneration unless:

1. (1) it is exceptional;
2. (2) it occurs in the context of hiring a new employee;
3. (3) the firm has a sound and strong capital base; and
4. (4) it is limited to the first year of service.

[Note: Arts. 94(1)(d) and (e) of the CRD and Standard 11 of the FSB Compensation Standards]

[Note: CRD]

15.8

[Deleted.]

15.9

A firm must set an appropriate ratio between the fixed and variable components of total remuneration and ensure that:

1. (1) fixed and variable components of total remuneration are appropriately balanced;
2. (2) the level of the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component; and
3. (3) subject to 15.10, the level of the variable component of total remuneration must not exceed 100% of the fixed component of total remuneration for each material risk taker.

[Note: Arts. 94(1)(f) and 94(1)(g)(i) of the CRD]

[Note: CRD]

15.10

A firm may set a higher maximum level of the ratio between the fixed and variable components of remuneration provided:

1. (1) the overall level of the variable component does not exceed 200% of the fixed component of the total remuneration for each material risk taker; and
2. (2) is approved by the shareholders or owners or members of the firm in accordance with 15.11.

15.11

A firm must ensure that any approval by the shareholders or owners or members of the firm for the purposes of 15.10 is carried out in accordance with the following procedure:

1. (1) the firm must give reasonable notice to all shareholders or owners or members of the firm that the firm intends to seek approval of the proposed higher ratio;
2. (2) the firm must make a detailed recommendation to all shareholders or owners or members of the firm giving the reasons for, and the scope of, the approval sought, including the number of staff affected, their functions and the expected impact on the requirement to maintain a sound capital base;
3. (3) the firm must, without delay, inform the PRA of the recommendation to its shareholders or owners or members, including the proposed higher ratio and the reasons therefor and must demonstrate to the PRA that the proposed higher ratio does not conflict with the firm's obligations under the CRD and the CRR, having regard in particular to the firm's own funds obligations;
4. (4) the firm must ensure that employees who have an interest in the proposed higher ratio are not allowed to exercise, directly or indirectly, any voting rights they may have as shareholders or owners or members of the firm in respect of the approval sought; and
5. (5) the higher ratio is approved by:
1. (a) at least 66% of the shares or equivalent ownership rights represented, if at least 50% of the shares or equivalent ownership rights in the firm are represented; or
2. (b) at least 75% of the shares or equivalent ownership rights represented if less than 50% of the shares or equivalent ownership rights in the firm are represented.

[Note: Art. 94(1)(g)(ii) of the CRD]

[Note: CRD and CRR]

15.12

A firm must notify without delay the PRA of the decisions taken by its shareholders or members or owners including any approved higher maximum ratio.

[Note: Art. 94(1)(g)(ii) of the CRD]

[Note: CRD]

15.13

A firm may apply a discount rate to a maximum of 25% of an employee's total variable remuneration provided it is paid in instruments that are deferred for a period of not less than five years. In applying this discount rate, firms must apply the EBA Guidelines on the applicable notional discount rate for variable remuneration of 27 March 2014.

[Note: Art. 94(1)(g)(iii) of the CRD and EBA Guidelines on the applicable notional discount rate for variable remuneration]

[Note: CRD]

15.14

A firm must ensure that payments relating to the early termination of a contract reflect performance achieved over time and are designed in a way that does not reward failure or misconduct.

[Note: Art. 94(1)(h) of the CRD and Standard 12 of the FSB Compensation Standards]

[Note: CRD]

15.15

A firm must ensure that:

1. (1) a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of:
1. (a) shares or equivalent ownership interests, subject to the legal structure of the firm concerned, or share-linked instruments or equivalent non-cash instruments in the case of a non-listed firm; and
2. (b) where possible other instruments which are eligible as Additional Tier 1 instruments or are eligible as Tier 2 instruments or other instruments that can be fully converted to Common Equity Tier 1 instruments or written down, that in each case adequately reflect the credit quality of the firm as a going concern and are appropriate for use as variable remuneration; and
2. (2) the instruments referred to in paragraph (1) are subject to an appropriate retention policy designed to align incentives with the longer-term interests of the firm.

15.16

A firm must apply 15.15 to both the portion of the variable remuneration component deferred in accordance with 15.17 and 15.18 and the portion not deferred.

[Note: Art. 94(1)(l) of the CRD and Standard 8 of the FSB Compensation Standards]

[Note: CRD]

15.17

1. (1) A firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period which is not less than:
1. (a) in the case of a material risk taker who is not subject to (b) or (c), three years, vesting no faster than on a pro-rata basis;
2. (b) in the case of a material risk taker who does not perform a PRA senior management function, but whose professional activities meet the qualitative criteria set out in Article 3(1) to 3(9), 3(10) (but only by virtue of being responsible for a committee referred to therein), 3(13) or 3(15) of the Material Risk Takers Regulation, five years, vesting no faster than on a pro-rata basis; or
3. (c) in the case of a material risk taker who performs a PRA senior management function, seven years, with no vesting to take place until three years after award, and vesting no faster than on a pro-rata basis thereafter.

15.18

In the case of a variable remuneration component:

1. (1) of £500,000 or more; or
2. (2) payable to a director of a firm that is significant in terms of its size, internal organisation and the nature, scope and complexity of its activities;

at least 60% of the amount must be deferred on the basis set out in 15.17.

15.19

Subject to 15.17, the length of the deferral period must be established in accordance with the business cycle, the nature of the business, its risks and the activities of the employee in question.

[Note: Art. 94(1)(m) of the CRD and Standards 6 and 7 of the FSB Compensation Standards]

[Note: CRD]

15.20

A firm must ensure that:

1. (1) any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified on the basis of the performance of the firm, the business unit and the individual concerned;
2. (2) any variable remuneration is subject to clawback, such that it is only awarded if an amount corresponding to it can be recovered from the individual by the firm if the recovery is justified on the basis of the circumstances described in 15.21(2) or 15.23; and
3. (3) any variable remuneration is subject to clawback for a period of at least 7 years from the date on which the variable remuneration is awarded;
4. (4) in the case of a material risk taker who performs a PRA senior management function, the firm can, by notice to the employee to be given no later than 7 years after the variable remuneration was awarded, extend the period during which variable remuneration is subject to clawback to at least 10 years from the date on which the variable remuneration is awarded, where:
1. (a) the firm has commenced an investigation into facts or events which it considers could potentially lead to the application of clawback were it not for the expiry of the clawback period; or
2. (b) the firm has been notified by a regulatory authority (including an overseas regulatory authority) that an investigation has been commenced into facts or events which the firm considers could potentially lead to the application of clawback by the firm were it not for the expiry of the clawback period; and
5. (5) it considers on an ongoing basis whether to use the power in (4).

[Note: Art. 94(1)(n) of the CRD and Standards 6 and 9 of the FSB Compensation Standards]

[Note: CRD]

15.21

A firm must:

1. (1) set specific criteria for the application of malus and clawback; and
2. (2) ensure that the criteria for the application of malus and clawback in particular cover situations where the employee:
1. (a) participated in or was responsible for conduct which resulted in significant losses to the firm; or
2. (b) failed to meet appropriate standards of fitness and propriety.

[Note: Art. 94(1)(n) of the CRD]

[Note: CRD]

15.22

1. (1) A firm should reduce unvested deferred variable remuneration when, as a minimum:
1. (a) there is reasonable evidence of employee misbehaviour or material error;
2. (b) the firm or the relevant business unit suffers a material downturn in its financial performance; or
3. (c) the firm or the relevant business unit suffers a material failure of risk management.
2. (2) For performance adjustment purposes, awards of deferred variable remuneration made in shares or other non-cash instruments should provide the ability for a firm to reduce the number of shares or other non-cash instruments.
3. (3) Contravention of any of (1) or (2) may be relied on as tending to establish contravention of 15.20(1). Contravention of (1) or (2) does not give rise to any of the consequences provided for by provisions of FSMA other than section 138C.

15.23

A firm must make all reasonable efforts to recover an appropriate amount corresponding to some or all vested variable remuneration where either of the following circumstances arise during the period in which clawback applies (including any part of such period occurring after the relevant employment has ceased):

1. (1) there is reasonable evidence of employee misbehaviour or material error; or
2. (2) the firm or the relevant business unit suffers a material failure of risk management.

A firm must take into account all relevant factors (including, where the circumstances described in (2) arise, the proximity of the employee to the failure of risk management in question and the employee’s level of responsibility) in deciding whether and to what extent it is reasonable to seek recovery of any or all of their vested variable remuneration.

15A.1

This Chapter applies where:

1. (1) a firm agrees with an employee to pay or provide a buy-out;
2. (2) the buy-out relates to employment with, or provision of services to, a previous firm that was subject to the remuneration requirements; and
3. (3) the employee was a material risk taker in that previous firm.

15A.2

A firm may only award, pay or provide a buy-out to an employee if it enters into a contract with the employee which enables the firm, following receipt of a reduction notice, to:

1. (1) reduce all or part of the buy-out in accordance with 15.22(1)(a) and (c), (2) and (3); and
2. (2) recover all or part of the buy-out in accordance with 15.23.

15A.3

1. (1) A firm must ensure a buy-out aligns with the long term interests of the firm including appropriate retention, deferral, performance and clawback arrangements.
2. (2) The duration of retention, deferral, performance and clawback arrangements applied to a buy-out, or part of a buy-out, must be no shorter than such duration as was applied and remained outstanding in relation to unvested variable remuneration awarded by a previous firm to the person as an employee of that previous firm.

[Note: Art. 94(1)(i) of the CRD]

15A.4

1. (1) A firm must obtain remuneration statements from the employee before agreeing to provide the employee with a buy-out.
2. (2) The amount of a buy-out may be no greater than the aggregate amount of unvested variable remuneration referred to in the remuneration statements provided to the firm by the employee.

15A.5

1. (1) A firm must, in writing, inform a previous firm (“buy-out notice”):
1. (a) that it has entered into a contract which includes the terms required by 15A.2;
2. (b) of the amount attributable to unvested variable remuneration paid to the employee by that previous firm; and
3. (c) of the duration of retention, deferral, performance and clawback arrangements that would apply to the amount or part of the amount identified in (b).
2. (2) Where the buy-out does not include an amount attributable to unvested variable remuneration paid to the employee by a previous firm, (1) does not apply.

15A.6

On receipt of a reduction notice from a previous firm, the firm must reduce, or make all reasonable efforts to recover an amount corresponding to, the buy-out, in the amounts notified to it by the previous firm, before the vesting of the next relevant deferred payment, or in a case where clawback is applicable, within a reasonable period, and in any event, no later than the end of the applicable clawback periods in 15.20(3) and 15.20(4).

15A.7

1. (1) A previous firm must provide its employee or former employee with a statement (“remuneration statement”) containing the following information:
1. (a) all periods during which the employee was a material risk taker;
2. (b) the amount of unvested variable remuneration available to be bought out applicable to the periods during which the employee was a material risk taker; and
3. (c) the duration of retention, deferral, performance and clawback arrangements that the previous firm would apply to each amount or part of an amount identified in (b).
2. (2) The information in (1) must be provided to the employee or former employee within 14 working days of a request by that employee or former employee.

15A.8

1. (1) A previous firm which has received a buy-out notice must, in relation to that former employee, consider whether it would have reduced unvested variable remuneration or required the repayment of an amount corresponding to vested variable remuneration in accordance with the criteria it has set under 15.21 until the end of the last period contained in the remuneration statement it provided to that employee.
2. (2) Consideration of any reduction of unvested variable remuneration must only cover reductions for reasons contained in 15.22(1)(a) and (c).

15A.9

1. (1) The previous firm must determine the amounts by which it would have:
1. (a) reduced unvested variable remuneration; or
2. (b) required the repayment of an amount corresponding to vested variable remuneration
3. had the former employee remained in its employment or been providing services and the duration of retention, deferral, performance and clawback arrangements were as notified under 15A.5(c).
2. (2) The previous firm must make such determinations fairly and reasonably, including by:
1. (a) providing the former employee with details and reasons for the proposed determination;
2. (b) enabling the former employee to make representations as to why the proposed determination in (a) should not be made; and
3. (c) taking account of those representations in making the determination.
3. (3) The previous firm must, in writing, notify the firm and the employee of any amounts determined under (1) no later than 14 working days after it makes its final determination (“a reduction notice”).

15A.10

A firm must not:

1. (a) structure any element of an employee’s remuneration in a way that could result in remuneration which otherwise would be characterised as part of a buy-out, not being characterised as such; or
3. (b) act or fail to act in a way which would otherwise seek to avoid the requirements of this chapter.

15A.11

A contravention of 15A.9(2) by a firm is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to such actions for breach of statutory duty.

16.1

Subject to 16.2 to 16.7, the voiding provisions in 16.9 to 16.13 apply in relation to the prohibitions on material risk takers being remunerated in the ways specified in:

1. (1) 15.7 (guaranteed variable remuneration);
2. (2) 15.17 to 15.19 (deferred variable remuneration);
3. (3) 15.20(2) (performance adjustment – clawback);
4. (3A) 15A.2 (buy-out contract);and
5. (4) 16.16 (replacing payments recovered or property transferred).

16.2

16.1 applies only to those prohibitions as they apply in relation to a firm that satisfies either Condition 1 or Condition 2, as set out in 16.3 and 16.4.

16.3

Condition 1 is that the firm is a CRR firm that has relevant total assets exceeding £50 billion.

16.4

Condition 2 is that the firm:

1. (1) is a credit institution or a UK designated investment firm; and
2. (2) is part of a group containing a firm that has relevant total assets exceeding £50 billion and that is a CRR firm.

16.5

For the purposes of 16.3 and 16.4 “relevant total assets” means the arithmetic mean of the firm’s total assets as set out in its balance sheet on its last three accounting reference dates.

16.6

The voiding provisions in 16.9 to 16.13 do not apply in relation to the prohibition on material risk takers being remunerated in the way specified in 15.7 (guaranteed variable remuneration) if both the conditions in paragraphs (2) and (3) of that rule are met.

16.7

The voiding provisions in 16.9 to 16.13 do not apply in relation to a material risk taker (X) in respect of whom both the following conditions are satisfied:

1. (1) Condition 1 is that X’s variable remuneration is no more than 33% of total remuneration; and
2. (2) Condition 2 is that X’s total remuneration is no more than £500,000.

16.8

In relation to 16.7:

1. (1) references to remuneration are to remuneration awarded or paid in respect of the relevant performance year;
2. (2) the amount of any remuneration is:
1. (a) if it is money, its amount when awarded;
2. (b) otherwise, whichever of the following is greatest: its value to the recipient when awarded; its market value when awarded; or the cost of providing it at the time of the award;
3. (3) where remuneration is, when awarded, subject to any condition, restriction or other similar provision which causes the amount of the remuneration to be less than it otherwise would be, that condition, restriction or provision is to be ignored in arriving at its value; and
4. (4) it is to be assumed that the material risk taker will remain so for the duration of the relevant performance year.

16.9

Any provision of an agreement that contravenes a prohibition on persons being remunerated in a way specified in a rule to which this rule applies (a “contravening provision”) is void.

16.10

A contravening provision does not cease to be void because:

1. (1) the firm concerned ceases to satisfy any of the conditions set out in 16.3 to 16.4; or
2. (2) the material risk taker concerned starts to satisfy both of the conditions set out in 16.7 (1) and (2).

16.11

A contravening provision that, at the time a rule to which this rule applies was first made (including any corresponding rules specified in SYSC 19A.3.54R of the PRA Handbook), is contained in an agreement made before that time is not rendered void by 16.9 unless it is subsequently amended so as to contravene such a rule.

16.12

1. (1) A pre-existing provision is not rendered void by 16.9.
2. (2) In this Chapter, a pre-existing provision is any provision of an agreement that would (but for this rule) be rendered void by 16.9 that was agreed at a time when either:
1. (a) the firm concerned did not satisfy any of the conditions set out in 16.3 to 16.4; or
2. (b) the material risk taker concerned satisfied both of the conditions set out in 16.7(1) and (2).
3. (3) But an amendment to, or in relation to, a pre-existing provision is not to be treated as a pre-existing provision where the amendment is agreed at a time when both:
1. (a) the firm concerned satisfies at least one of the conditions set out in 16.3 to 16.4; and
2. (b) the material risk taker concerned does not satisfy both of the conditions set out in 16.7(1) and (2).

16.13

For the purposes of this Chapter, it is immaterial whether the law which (apart from 16.9 to 16.16) governs a contravening provision is the law of the UK, or of a part of the UK.

16.14

In relation to any payment made or other property transferred in pursuance of a contravening provision other than a pre-existing provision, a firm must take reasonable steps to:

1. (1) recover any such payment made or other property transferred by the firm; and
2. (2) ensure that any other person recovers any such payment made or other property transferred by that person.

16.15

16.14 continues to apply in one or both of the following cases:

1. (1) the firm concerned ceases to satisfy any of the conditions set out in 16.3 to 16.4;
2. (2) the material risk taker concerned starts to satisfy both of the conditions set out in 16.7 (1) and (2).

16.16

1. (1) A firm must not award, pay or provide variable remuneration to a person who has received remuneration in pursuance of a contravening provision other than a pre-existing provision (the "contravening remuneration") unless the firm has obtained a legal opinion stating that the award, payment or provision of the remuneration complies with this Part.
2. (2) This rule applies:
1. (a) in the case of a contravention of 15A.4, only to remuneration relating to the commencement of employment with or provision of services for the firm; and
2. (b) in any other case, only to variable remuneration relating to a performance year to which the contravening remuneration related.
3. (3) The legal opinion in (1) must be properly reasoned and be provided by an appropriately qualified independent individual.
4. (4) Paragraph (1) continues to apply in one or both of the following cases:
1. (a) the firm concerned ceases to satisfy any of the conditions set out in 16.3 to 16.4;
2. (b) the material risk taker concerned starts to satisfy both of the conditions set out in 16.7(1) and (2).

17.1

This Chapter applies to a firm to which this Part applies, which had total assets equal to or greater than £50 billion on an unconsolidated basis on the accounting reference date immediately prior to the firm’s last complete financial year.

17.2

A firm must submit a Remuneration Benchmarking Information Report to the PRA annually.

17.3

The firm must provide to the PRA, by way of its Remuneration Benchmarking Information Report, the information disclosed in accordance with the criteria for disclosure established in points (g), (h) and (i) of Article 450(1) of the CRR.

[Note: Art. 75(1) of the CRD]

[Note: CRD and CRR]

17.4

The firm must submit the Remuneration Benchmarking Information Report to the PRA within four months of the firm’s accounting reference date.

17.5

A firm that is not, and does not have, an EEA parent institution, an EEA parent financial holding company or an EEA parent mixed financial holding company must complete that report on an unconsolidated basis in respect of remuneration awarded to employees of the firm in the last completed financial year.

17.6

A firm that is a CRR firm responsible for consolidation must complete that report on a consolidated basis in respect of remuneration awarded to all employees of all consolidation group entities in the last completed financial year.

17.7

The firm must ensure that the information in the Remuneration Benchmarking Information Report is denominated in euro, determined by reference to the exchange rate used by the European Commission for financial programming and the budget for December of the reported year.

[Note: EBA/GL/2014/08]

18.1

The Chapter applies in relation to high earners and not only in relation to material risk takers.

18.2

A firm must submit a High Earners Report to the PRA annually.

18.3

The firm must submit that report to the PRA within four months of the end of the firm’s accounting reference date.

18.4

A firm that is not, and does not have, an EEA parent institution, an EEA parent financial holding company or an EEA parent mixed financial holding company must complete that report on an unconsolidated basis in respect of remuneration awarded in the last completed financial year to all high earners of the firm who mainly undertook their professional activities within the EEA.

18.5

A firm that is a CRR firm responsible for consolidation must complete that report on a consolidated basis in respect of remuneration awarded in the last completed financial year to all high earners who mainly undertook their professional activities within the EEA at:

1. (1) the EEA parent institution, EEA parent financial holding company or the EEA parent mixed financial holding company of the consolidation group;
2. (2) each consolidation group entity that has its registered office (or if it has no registered office, its head office) in an EEA State; and
3. (3) each branch of any other consolidation group entity that is established or operating in an EEA State.

18.6

The firm’s High Earners Report must report, in pay brackets of €1m, the number of high earners, including their job responsibilities, the business area involved and the main elements of salary, bonus, long-term award and pension contribution. The number of high earners must be reported as the number of natural persons, independent of the number of working hours on which their contract is based.

[Note: Art. 75(3) of the CRD]

[Note: CRD]

18.7

The firm must ensure that the information in the High Earners Report is denominated in euro, determined by reference to the exchange rate used by the European Commission for financial programming and the budget for December of the reported year.

[Note: EBA/GL/2014/07]