ARTICLE
11 March 2016

UK Regulators Will Not Apply Bonus Cap Requirements To Smaller Firms

AO
A&O Shearman

Contributor

A&O Shearman was formed in 2024 via the merger of two historic firms, Allen & Overy and Shearman & Sterling. With nearly 4,000 lawyers globally, we are equally fluent in English law, U.S. law and the laws of the world’s most dynamic markets. This combination creates a new kind of law firm, one built to achieve unparalleled outcomes for our clients on their most complex, multijurisdictional matters – everywhere in the world. A firm that advises at the forefront of the forces changing the current of global business and that is unrivalled in its global strength. Our clients benefit from the collective experience of teams who work with many of the world’s most influential companies and institutions, and have a history of precedent-setting innovations. Together our lawyers advise more than a third of NYSE-listed businesses, a fifth of the NASDAQ and a notable proportion of the London Stock Exchange, the Euronext, Euronext Paris and the Tokyo and Hong Kong Stock Exchanges.
On February 29, 2016, the PRA and FCA jointly announced that they will comply with all aspects of the EBA's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap.
United Kingdom Finance and Banking

On February 29, 2016, the PRA and FCA jointly announced that they will comply with all aspects of the EBA's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm's size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.

The PRA and FCA's joint statement are available at: http://www.bankofengland.co.uk/publications/Documents/news/2016/037.pdf and the EBA's Guidelines on Sound Remuneration Policies is available at: http://www.eba.europa.eu/documents/10180/1314839/EBA-GL-2015-22+Guidelines+on+Sound+Remuneration+Policies.pdf

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