UK financial services remuneration regulations to capture more Australian subsidiaries

The UK Prudential Regulation Authority which regulates and supervises banks, building societies, credit unions, insurers and asset managers has telegraphed changes on implementation of CRD V (EU’s Capital Requirements Directive).  The changes are outlined in its consultation paper released on 31 July 2020 and will be effective for financial years beginning on or after 28 December 2020.

The revised standards will capture more companies, including subsidiaries of Australian companies, that for various reasons escaped the remuneration regulations applied to larger competitors. Probably most impacted will be asset managers.

The proposed changes apply to the:

  • Bankers’ bonus cap (1 times fixed pay or 2 times fixed pay with shareholder approval); and
  • Deferral thresholds which have been reduced for individuals who would otherwise be a Material Risk Taker.

The bonus cap where the exemption for smaller firms is to be removed.

Currently if an individual’s total remuneration is below GBP500,000 and the variable remuneration (VR) is 1/3rd or less of the total remuneration they were exempted from the deferral requirements.  The exemption threshold now focuses on a VR payment which must be GBP50,000 or less and no more than 1/3rd of total remuneration.

Other changes include:

  • Increase in the minimum deferral period from 3 to 4 years.
  • Clarification that:
    • Performance adjustment policies (including malus and clawback) must apply firm-wide; and
    • If a firm has entities with different tiers of proportionality within the group, the rules applying to the entity with the highest tier must apply group-wide.

See the consultation paper HERE.

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