European Banking Authority
Remuneration and high earners - EBA publishes report on benchmarking and data - 21 July 2022
The European Banking Authority (EBA) has published a report (EBA/Rep/2022/17) (the Report) on the benchmarking of remuneration practices in EU banks for the financial years 2019 and 2020 and high earners (those awarded EUR 1 million or more remuneration) data for 2020. The Report is required under mandates in Articles 75 and 94 of the Capital Requirements Directive (2013/36/EU) (CRD IV).
Overall, the EBA notes that the number of high earners fell from 1444 (EU27/EEA) or 4963 (EU28/EEA) in 2019 to 1383 (EU27/EEA) in 2020, and that, while the bonus level for high earners remained relatively stable, a visible reduction can be observed for staff whose professional activities have a material impact on the institution’s risk profile. The reduction in the number of high earners and bonuses of identified staff was, according to the report, mainly caused by the COVID-19 pandemic and is consistent with the EBA’s March 2022 recommendations to apply more conservative remuneration policies during the pandemic.
The EBA will continue to benchmark remuneration trends every two years and will publish annual data on high earners. It will also start to benchmark the application of derogations from the requirements to pay out a part of the variable remuneration in instruments and under deferral arrangements, and the gender pay gap separately for credit institutions and investment firms.
EBA Report: Benchmarking of remuneration practices at the European Union level (2019 and 2020 data) and data on high earners (2020 data) (EBA/Rep/2022/17)
Press release
UK Government
The Payment and Electronic Money Institution Insolvency (England and Wales) (Amendment) Rules 2022 - Statutory instrument and explanatory memorandum published - 20 July 2022
The Payment and Electronic Money Institution Insolvency (England and Wales) (Amendment) Rules 2022 (the Rules) have been published, together with an explanatory memorandum.
The Rules correct minor drafting errors in the rules for the special administration procedure established in The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 (the 2021 Rules), under the Payment and Electronic Money Institution Insolvency Regulations 2021. The Rules also delete Rule 291(1) of the 2021 Rules to avoid duplication with the Insolvency Act 1986 and to ensure consistency.
The Rules will come into force on 10 August 2022.
The Payment and Electronic Money Institution Insolvency (England and Wales) (Amendment) Rules 2022
Explanatory memorandum
Webpage
HM Treasury
Payments Regulation and the Systemic Perimeter - HM Treasury publishes consultation - 21 July 2022
HM Treasury has published a consultation on Payments Regulation and the Systemic Perimeter that meets a government commitment made in the response to the 2021 ‘Payments Landscape Review’. The consultation sets out why now is the time to review the applicability of the Bank of England’s (the Bank’s) existing regulatory perimeter over payment systems, the government’s principles in approaching any reforms, and potential adjustments to the framework of the Banking Act 2009.
The consultation outlines the government’s considerations as to how the payments regulatory framework fits with the outcomes of the Future Regulatory Framework Review (see further an item in the Beyond Brexit section of this Bulletin). It also seeks views on exploring the scope of application of a Senior Managers & Certification Regime for the regulation of payments; and finally, changes to the current regulatory framework of the Payment Systems Regulator, as set out in the Financial Services (Banking Reform) Act 2013.
A number of other topics are explored, including the rationale for expanding the Bank’s supervision of systemic risk relating to payments beyond payment systems and associated service providers and the principles the government would apply to any reforms of the Bank’s regulatory responsibility for systemic payments activities, namely that of ‘same risk, same regulatory outcome’. The consultation also considers what an amended regulatory perimeter would involve for regulating risk end-to-end throughout the payment chain; what criteria would apply to recognising new entities; and the continued role for HM Treasury in determining which entities fall within the systemic regulatory regime.
Of particular note is the commentary on location requirements for firms that actively market stablecoins used as a means of payment to UK consumers and the indication from government that it:
“is minded not to create an automatic or ex ante location requirement for an entity recognised under the Banking Act to be established in the UK, but to clarify in the legislation that the Bank has the ability to apply such a requirement where it deems this necessary as part of its role in overseeing the risk posed by a particular recognised entity’s operations”.
The consultation also refers to the fact that, although for the most part payment services and e-money institutions who carry out, or intend to carry out, part of their business in the UK must establish (i.e. have a head office) in the UK, this is not the case for authorised electronic money institutions (EMIs) and regulated account information service providers (RAISPs) which may operate via only a branch presence in the UK. The government therefore welcomes evidence about the regulatory differences in the establishment requirements for different types of payment services and e-money firms, or if there are justifiable reasons for differentiating between these requirements.
The government will respond to this consultation in 2023 after receiving and reflecting on stakeholder feedback.
HM Treasury Consultation: Payments Regulation and the Systemic Perimeter
Webpage
Prudential Regulation Authority
Unvested pay, material risk takers and public appointments - PRA publishes Consultation Paper (CP8/22) - 15 July 2022
The PRA has published a Consultation Paper (CP8/22) on its supervisory expectations in respect of changes to the instruments or claims that comprise unvested, deferred sums awarded to Material Risk Takers (MRTs) as part of their variable pay. It considers, in particular, cases where a change is prompted by the need to manage a conflict of interest arising from an MRT seeking a senior public appointment linked to financial policy or financial services regulation.
The proposals would result in changes being made to PRA Supervisory Statement SS2/17 (‘Remuneration’). More specifically, they would create an expectation that firms should not ordinarily convert unvested, deferred pay awards to MRTs from equity to other instruments (or vice versa). However, the PRA considers there may be circumstances, notably seeking to address a conflict of interest that might arise from a public-sector appointment, where conversion might occur subject to the PRA’s prior non-objection. It is proposed that SS2/17 also be amended to outline the circumstances in which the PRA considers it more likely that a waiver or modification to its rules would meet the relevant statutory test where, in wholly exceptional circumstances, an adjustment is sought in relation to a public-sector appointment with a view to converting an award comprising equity or other instruments to a cash sum. In such cases, it is envisaged that such a conversion would be subject to contractual terms that ensured the discipline inherent in the PRA’s remuneration rules was maintained.
The proposed addition to SS2/17 would clarify that conversion from one instrument to another should not occur if this could undermine the PRA’s objective to promote the safety and soundness of firms by aligning the long-term interests of MRTs with the long-term interests of firms.
The deadline for responses is 19 September 2022. The PRA intends to implement the changes to SS2/17 on 12 December 2022.
PRA Consultation Paper: Remuneration: Unvested pay, Material Risk Takers and public appointments (CP8/22)
Appendices
Prudential and Resolution Policy Index - launched by the PRA - 19 July 2022
The PRA has launched its Prudential and Resolution Policy Index (the Index), which provides a list of, and links to, policies relating to the prudential regulation of financial services firms and firms in scope of the UK resolution regime.
The PRA has published a survey for users to submit feedback and suggestions on the Index.
Prudential and Resolution Policy Index
Press release
Risks and challenges for investment banks - PRA publishes speech - 20 July 2022
The PRA has published a speech delivered by Nathanaël Benjamin, PRA Executive Director, Authorisations, Regulatory Technology, and International Supervision, discussing the risks and challenges for investment banks caused by geopolitical and macroeconomic changes, new technology, and climate change.
Mr Benjamin notes that the biggest risk to investment banks is from the aggregate exposures of their clients. The PRA has seen banks’ counterparty risk concentrations not appropriately identified or controlled. He stresses that risk concentration should be assessed on a client-by-client basis, across all clients combined, across the client’s market-wide portfolio, and that the onus is on firms to demand this information from clients.
Mr Benjamin also cautions that established banks must not let commercial pressure to adopt new technologies or enter digital asset markets get in the way of first ensuring that they can properly understand and manage the associated risks. Banks should use the PRA’s operational resilience expectations to inform technology investment decisions and frontload the implementation of their operational resilience policy.
Mr Benjamin concludes by discussing climate change, noting that it is important for firms to take action now to prepare for future climate events. Investment banks should think about how counterparties might be exposed to climate risk, and as data becomes more readily available, the PRA expects firms to further develop their risk management and scenario analysis capabilities. Mr Benjamin also highlights lessons learned from the Bank of England’s recent Climate Biennial Exploratory Scenario, explaining that they provide a strong incentive for firms to embed the management of climate-related financial risks and to meet the PRA’s broader expectations set out in Supervisory Statement SS3/19.
PRA speech by Nathanaël Benjamin: New tides
Payment Systems Regulator
Digital Payments Initiative - PSR publishes response to PSR Panel report - 21 July 2022
The Payment Systems Regulator (PSR) has published its response to the PSR Panel’s report (the Report) on the PSR’s Digital Payments Initiative (the Initiative), which was published in May 2022. The Initiative was launched last year by the PSR to understand potential barriers to the take-up of digital payments, and to identify potential solutions and appropriate regulatory actions.
Overall, the PSR welcomes the Report’s recommendations. A key element of the PSR’s five-year strategy and current work programme is unlocking the potential of interbank payment systems, including by considering the potential benefits of open banking. A new Joint Regulatory Oversight Committee (the Committee) will consider the vision and strategic roadmap for further developing open banking. The PSR is keen to work with industry and other key stakeholders through a strategic working group (SWG), and has asked that the SWG recommend to the Committee how the PSR’s four priority issues can be addressed: (i) the system’s functional capability; (ii) dispute processes; (iii) access and reliability; and (iv) a sustainable funding model. The PSR, FCA and HM Treasury are working on proposals for a permanent future regulatory framework for open banking, based on joint regulatory oversight by the PSR and FCA, and backed by any necessary legislation.
The PSR explains that tackling the causes of digital exclusion lies beyond its remit but intends to explore with consumer representatives what more card and other payment system operators could do to facilitate the availability and use of digital payment services that meet the needs of those with limited digital and financial access or skills.
PSR Response Paper: The Digital Payments Initiative
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