Prudential Regulation Authority Rulebook

2.1

The PRA expects all Solvency II firms to comply with the remuneration requirements of Article 275 of the Solvency II Regulation and with the European Insurance and Occupational Pensions Authority (EIOPA) ‘Guidelines on system of governance’ finalised on 14 September 2015.^[2]

2.2

Group Supervision 17.1(2) of the PRA Rulebook (transposing Article 246 of Directive 2009/138/EC2 (‘Solvency II Directive’)) requires Solvency II firms to ensure that risk management and internal control systems and reporting procedures are implemented consistently in all entities included in the scope of group supervision. The EIOPA Guidelines^[3] confirm that a consistent remuneration policy for the whole group should be implemented and that the ‘policy should be applied to all relevant persons at group and individual entity level’.

2.3

All entities within the scope of a Solvency II group should have a consistent remuneration policy that is in line with the group’s risk management and internal control system to ensure those systems (including remuneration policy governance) can be controlled effectively at group level. Material risks at group level should also be reflected appropriately in the design of remuneration arrangements across all group entities.

2.4

It does not follow that the same remuneration policy with identical variable remuneration structures and pay practices should apply to every group entity. If staff identified in accordance with Article 275(1)( c) (’Solvency II staff’) are employed by non-European Economic Area (EEA) entities located in jurisdictions with conflicting local regulatory, legal, operational or taxation requirements it may be necessary to deviate from the group remuneration policy for these employees. Firms should communicate to the PRA any significant deviations from the group’s remuneration policy either in the Remuneration Policy Statement (RPS) reporting template for PRA Category 1 and 2 firms or via an alternative format if preferred. Firms should include an explanation where there are material differences between: (i) the remuneration arrangements for Solvency II staff identified in non-EEA entities; and (ii) the remuneration arrangements for other group Solvency II staff.

2.5

The EIOPA Guidelines^[4] are clear that ‘the holding company should ensure all undertakings that belong to the group comply with the [Solvency II] remuneration requirements’. Therefore, where the PRA is the group supervisor, the PRA expects non-EEA entities in the group to comply with the Solvency II Regulation. The PRA accepts however that, in groups with non-EEA entities, application of the ‘specific arrangements’ (contained in Article 275(2)) to Solvency II staff may require modifications to the remuneration policy to accommodate jurisdictional restrictions, which may mean the PRA’s expectations are unable to be met.

2.6

The PRA recognises that many insurance groups contain banking and asset management entities which are subject to other regulatory regimes such as the Capital Requirements Directive (CRD), Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities Directive (UCITS V), and thus different remuneration requirements may need to be applied within the group. However there will still need to be a high degree of consistency across individual firm policies to enable the remuneration policy to be controlled at group level as required.