Prudential Regulation Authority Rulebook

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:
2. 1. (a) all members of the management body and senior management;
   2. (b) employees with managerial responsibility over the firm’s control functions or material business units;
   3. (c) employees entitled to significant total remuneration in the preceding financial year, where:
   1. (i) that total remuneration was equal to or greater than £440,000 and equal to or greater than the average remuneration awarded to the members of the firm’s management body and senior management referred to in (a); and
   2. (ii) the employee performs the professional activity within a material business unit and the activity is of a kind that has a significant impact on the risk profile of a material business unit;
   4. (d) employees whose professional activities are deemed to have a material impact on the firm’s risk profile under 3.2A and 3.3A; or
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: Article 92 of the CRD]

3.1A

For the purposes of 3.1(1)(c) and (d), a firm must calculate all amounts of variable and fixed remuneration on a gross and full-time equivalent basis.

3.1B

For the purposes of 3.1(1)(c)(i):

1. (1) a firm must calculate the average total remuneration of all members of the firm’s management body and senior management by taking into account the total of the fixed and variable remuneration of all members of the firm’s management body in its management function and supervisory function as well as all members of senior management; and
2. (2) a firm must value variable remuneration that has been awarded but has not yet been paid as at the date of the award without taking into account reductions in pay-outs through clawback, malus or otherwise.

3.1C

For the purposes of 3.1(1)(c)(ii), in determining whether the professional activity of an employee has a significant impact on the risk profile of a material business unit a firm must apply all of the following criteria within its remuneration policies, practices and procedures:

1. (1) the risk profile of the material business unit;
2. (2) the distribution of internal capital to cover the nature and level of the risks, as referred to in Internal Capital Adequacy Assessment 3.1(1);
3. (3) the risk limits of the material business unit;
4. (4) the risk and performance indicators used by the firm to identify, manage and monitor risks of the material business unit in accordance with General Organisational Requirements 2.1;
5. (5) the relevant performance criteria set by the firm in accordance with 15.4 and 15.6; and
6. (6) the duties and authorities of employees or categories of employee in the material business unit concerned.

3.2

[Deleted.]

3.2A

In addition to employees identified under the criteria set out in 3.1(1)(a) to (c), a firm must deem an employee to have a material impact on a firm's risk profile where one or more of the following qualitative criteria are met:

1. (1) the employee has managerial responsibility for any of the following:
1. (a) legal affairs;
2. (b) the soundness of accounting policies and procedures;
3. (c) finance, including taxation and budgeting;
4. (d) performing economic analysis;
5. (e) the prevention of money laundering and terrorist financing;
6. (f) human resources;
7. (g) the development or implementation of the remuneration policy;
8. (h) information technology;
9. (i) information security; or
10. (j) managing outsourcing arrangements of a function, where a defect or failure in the performance of that function would materially impair the continuing compliance of the firm with the conditions and obligations of its authorisation, financial performance, or the soundness or continuity of its services and activities;
2. (2) the employee has managerial responsibility for any of the risk categories set out in Internal Capital Adequacy Assessment Part 3.1(2) (a) to (g), (i) and (j) or is a voting member of a committee responsible for the management of such a risk category;
3. (3) with regard to credit risk exposures of a nominal amount per transaction, representing 0.5% of the firm's common equity tier 1 capital and which is at least £4.5 million, the employee member meets either of the following criteria:
1. (a) the employee has the authority to take, approve or veto decisions on such credit risk exposures; or
2. (b) the employee is a voting member of a committee which has the authority to take the decisions as referred to in (a);
4. (4) in relation to a firm for which the derogation for small trading book businesses set out in Article 94 of the CRR does not apply, the employee meets either of the following criteria:
1. (a) the employee has the authority to take, approve or veto decisions on transactions on the trading book that in aggregate represent one of the following thresholds:
1. (i) where the standardised approach is used, an own funds requirement for market risk that represents 0.5 % or more of the firm's common equity tier 1 capital;
2. (ii) where an internal model based approach is approved for regulatory purposes, 5% or more of the firm's internal value-at-risk limit for trading book exposures at a 99th percentile (one-tailed confidence interval level); or
2. (b) the employee is a voting member of a committee that has the authority to take the decisions referred to in (a);
5. (5) the employee heads a group of employees who have individual authorities to commit the firm to transactions and either of the following conditions is met:
1. (a) the sum of those authorities equals or exceeds the threshold referred to in 3.2A(3)(a) or 3.2A(4)(a)(i); or
2. (b) where an internal model based approach is approved for regulatory purposes, those authorities amount to 5% or more of the firm's internal value-at-risk limit for trading book exposures at a 99th percentile (one-tailed confidence interval level): where the firm does not calculate a value-at-risk at the level of that employee, the value-at-risk limits of employees under the management of that employee must be aggregated; or
6. (6) the employee meets either of the following criteria with regard to decisions on approving or vetoing the introduction of new products:
1. (a) the employee has authority to take such decisions; or
2. (b) the employee is a voting member of a committee that has authority to take such decisions.

3.3

[Deleted.]

[Note: Material Risk Takers Regulation]

3.3A

In addition to employees identified under the criteria set out in 3.1(1)(a) and (b), a firm must deem an employee to have a material impact on a firm's risk profile where either of the following quantitative criteria are met:

1. (1) the employee, including an employee referred to in 3.1(1)(c), has been awarded in or for the preceding performance year a total remuneration that is equal to or greater than £660,000; or
2. (2) where the firm has over 1,000 employees, the employee is within the 0.3% of employees within the firm (which is to be calculated on an individual entity basis only and rounded to the next higher integral figure) who have been awarded the highest total remuneration in or for the preceding performance year.

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]