21 July 2020
Last week, the UK’s Treasury published a consultation paper on updating the UK’s prudential regime before the end of the Brexit transition period, focusing on the UK implementation of the Capital Requirements Directive V (CRDV).
We previously reported on the reforms proposed by CRDV as well as the changes under the Capital Requirements Regulation II here.
The Capital Requirements Directives impact how remuneration in banking firms is structured. Broadly, they require certain portions of remuneration to be deferred; remuneration to be paid in certain instruments, such as shares; for malus and clawback provisions to be implemented and, the rules also contain a ‘bonus cap’. CRDV implements various changes, including the requirement for remuneration policies and practices to be ‘gender neutral’.
The Capital Requirements Directives work alongside the Capital Requirements Regulations, which set out various remuneration disclosure requirements.
The consultation asks for comments on the areas which will require legislation. This includes the Treasury’s proposals relating to its intention to exempt from its scope those investment firms prudentially regulated by the Financial Conduct Authority, as well as making amendments to the list of exempted entities under CRDV, the macro-prudential tools available to the Prudential Regulation Authority (PRA) relating to capital buffers, and increasing the supervision of holding companies and their management. The full consultation paper can be accessed here.
Specifically, relating to remuneration, the Treasury does not intend to introduce new requirements to implement the CRDV measures requiring gender neutral remuneration policies and practices or the reporting of firms’ gender pay gaps, as the government is satisfied that the existing framework meets the objectives of CRDV. However, equality law, covering gender neutrality and gender pay gap reporting, is a devolved power to Northern Ireland and the government is considering these requirements and their application in Northern Ireland.
Responses to the consultation paper are requested by 19 August 2020.
Responses can either be sent electronically to CRDVConsultation@hmtreasury.gov.uk, or posted to: Prudential Banking Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ. Responses should state whether the views are your own or are representing an organisation. If the latter, it should be clear who the organisation represents and, where applicable, how the views of the members were assembled.
We will be providing a more detailed analysis of the proposals shortly. With this newsletter we wanted to let you know the consultation is now open.
The intention of the Treasury is to implement CRDV using secondary legislation to update the existing framework which implemented the previous Capital Requirements Directives. This includes providing the PRA with new or updated powers, to implement CRDV and to ensure that the PRA can update its rulebook as needed. We will update you when any such updates take place. It is anticipated that information relating to CRDV’s implementation will increase in the build up to the UK’s firm deadline to transpose CRDV by 28 December 2020.
In addition, to further prepare the UK’s financial services regulatory regime for application following the end of the transition period, the Treasury has released a statement on the provisions of the EU’s Covid-19 CRR ‘quick fix’ amendment package into UK law which it intends to retain. We previously reported on the impact of these changes here.
If you have any questions about this alert, or if you would like to discuss your remuneration structures, please do let us know.