Published on 12 August 2016
Solvency II: Remuneration requirements – PS22/16
Overview
This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to responses on Consultation Paper (CP) 13/16 ‘Solvency II: Remuneration requirements’ and includes a final supervisory statement (SS) on the Solvency II remuneration requirements (see Appendix 1), and a Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms (see Appendix 2).
This PS is relevant to all UK Solvency II firms including the Society of Lloyd’s and managing agents (‘Solvency II firms’).
The Solvency II remuneration requirements are contained in Article 275 of the Commission Delegated Regulation (EU) 2015/35 (‘the Solvency II Regulation’) with guidance provided in the European Insurance and Occupational Pensions Authority (EIOPA) ‘Guidelines on system of governance’ finalised on 14 September 2015. The Solvency II Regulation is directly applicable to Solvency II firms, and as such it is for firms themselves to interpret the Solvency II Regulation correctly and ensure compliance.
The PRA expects all Solvency II firms to comply with Article 275 of the Solvency II Regulation. The PRA, as the supervisory authority responsible for monitoring and enforcing compliance with Article 275, publishes the final SS to support compliance by setting out the PRA’s expectations of how compliance may be achieved, particularly by ‘significant insurers’ (PRA Category 1 and 2 firms).
This policy has been designed in the context of the current UK and EU regulatory framework. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework, including those arising once any new arrangements with the European Union take effect.
Policy Statement 22/16Appendices
Solvency II Remuneration Policy Statement reporting template
Published on 7 April 2016
Solvency II: Remuneration requirements - CP13/16
This consultation paper (CP) seeks feedback on a draft supervisory statement which sets out the Prudential Regulation Authority’s (PRA) expectations with regards to Article 275 of the Commission Delegated Regulation (EU) 2015/35 (‘the Solvency II Regulation’).
This consultation is relevant to all UK insurance and reinsurance firms and groups within the scope of Solvency II including the Society of Lloyd’s and managing agents (‘Solvency II firms’).
Summary of proposals
From 1 January 2016, the remuneration requirements in the Solvency II Regulation became directly applicable to Solvency II firms. National Competent Authorities are expected to ensure that Solvency II firms are compliant. The PRA intends to monitor compliance with the regulatory requirements in the same way that it does for PRA rules.
The supervisory statement clarifies PRA expectations of how Solvency II firms should comply with the key Solvency II remuneration requirements such as identification of Solvency II staff (Article 275(1)(d)), deferral (Article 275(2)(c)), and performance measurement (Article 275(2)(b), (d) and (e)). The purpose of this statement is to ensure that the regulatory requirements are interpreted correctly and applied consistently across Solvency II firms with different outcomes due only to differences in the ‘internal organisation of the insurance or reinsurance undertaking, and the nature, scale and complexity of the risks inherent in its business’ (see Article 275(3) of the Solvency II Regulation).
Please note, the expectations set out in the supervisory statement reflect the PRA’s expectations at the time of writing and may be subject to change. For example, the Bank of England and Financial Services Bill proposes to introduce provisions in the Financial Services and Markets Act 2000 (FSMA) that would extend the Senior Managers and Certification Regime to insurers. Assuming the Bill receives Royal Assent, the PRA will need to consult. This particular issue is not the subject of this consultation paper and will be covered in a separate consultation later this year.
The PRA has engaged with the Financial Conduct Authority (FCA) on this draft supervisory statement.
A reporting template for PRA Category 1 and 2 firms to use for the 2016 performance year to demonstrate compliance with the requirements is included as an appendix in the consultation paper.
Response
This consultation closed on Thursday 2 June 2016.