FCA eyes gender neutral remuneration policies ahead of CRD V

The UK’s Financial Conduct Authority will require dual-regulated firms to “ensure and demonstrate gender-neutral remuneration practices as part of CRD V compliance – while the Prudential Regulation Authority announces changes to its group buffer policies under the directive.

The FCA released a consultation paper on 3 August, as it prepares to update its Remuneration Code for dual-regulated firms in line with the EU’s Capital Requirements Directive V (CRD V).

The FCA has said it will adopt the directive’s gender-neutral remuneration policy, “based on equal pay for male and female workers for equal work or work of equal value”.

The FCA says a new remuneration requirement on gender neutrality would “further [its] commitment” to upholding its public sector equality duty, and support its actions as a regulator in helping to eliminate “poor conduct” prohibited by the Equality Act 2010.

Current FCA rules require banks to have a “clear and verifiable mechanism” for measuring performance. In its 3 August paper, the regulator proposes to include guidance to clarify that firms must not discriminate against an individual’s “protected characteristics” when assessing individual performance to award variable remuneration.

“All of our proposals on gender neutrality in remuneration support and reaffirm our aim to drive healthy purposeful cultures in firms, which includes developing an inclusive and diverse workplace,” the FCA said.

“It will support us in supervising the extent to which firms are meeting these standards and holding them to account if they fail to do so.”

The FCA says its current provisions aim to ensure that remuneration policies promote “sound and effective risk management, do not provide incentives for excessive risk taking, and are aligned with the long-term interests of the firm”.

The FCA signed up to the Women in Finance Charter in 2016, and last year conducted an analysis of gender diversity within the financial sector.

But earlier this year Chartered Insurance Institute (CII) chief executive Sian Fisher said that her firm had pointed out to the FCA that, in some of its handbooks and constitutional documents, the “FCA itself was using language that was not gender neutral.”

Fisher noted the FCA was “still using the old way of referring to things and [we] were a bit shocked by that,” but said the regulator was kind enough to recognise it and are “committed to changing it.”

PRA subsidiary buffers

The UK’s implementation of CRD V has also seen the Prudential Regulation Authority (PRA) announce plans to impose buffers on an individual basis for firms that are part of a UK consolidation group.

The regulator announced the proposals in a consultation paper on 31 July.

The PRA said it would alter some rules, supervisory statements and statements of policy in order to implement elements of the directive, which is scheduled to come into force on 29 December – only days before the UK’s transition period out of the European Union is set to end.

The regulator proposes to implement the PRA buffer on an individual basis for firms that are part of a UK consolidation group, or part of a ring-fenced body (RFB) subsidiary.

The PRA proposes – using a group-level PRA buffer assessment as a base point – that  that subsidiaries will not be considered material if they comprise less than 5% of the UK consolidation group’s risk weighted assets, leverage exposures, and operating income

The regulator says it will then take into account the transferability of group resources, the nature and extent of integration of the subsidiary; the likelihood of group support; and the “significance of the entity and the risk profile of its business relative to the group”.

For subsidiaries not deemed material to the group, the PRA says it will examine whether their total capital requirement (TCR) and combined buffer exceed the capital the firm has determined in its internal assessment. If it has, the PRA says it will set a buffer of zero.

Although under the EU Withdrawal Agreement Act UK compliance with EU law is set to cease force in the UK after 23:00 GMT on 31 December,

The PRA says its proposals set out in the paper will continue to apply after the end of the transition period. But the regulator has also proposed not implementing those requirements of CRD V with a compliance date set after the transition period ends.

The consultation closes on 30 September.

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