Prudential Regulation Authority Rulebook

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).