SYSC 19G.5 Application of remuneration requirements to material risk takers
Identifying material risk takers
1A material risk taker is a staff member at a non-SNI MIFIDPRU investment firm whose professional activities have a material impact on the risk profile of the firm or of the assets that the firm manages.
1A non-SNI MIFIDPRU investment firm must assess at least once a year which of its staff members are material risk takers.
1For the purposes of SYSC 19G.5.1R, a staff member’s professional activities are deemed to have a material impact on a firm’s risk profile or the assets the firm manages if one or more of the following criteria are met:
- (1)
the staff member is a member of the management body in its management function;
- (2)
the staff member is a member of the management body in respect of the management body in its supervisory function;
- (3)
the staff member is a member of the senior management;
- (4)
the staff member has managerial responsibility for business units that are carrying on at least one of the following regulated activities:
- (a)
- (b)
- (c)
- (d)
- (e)
making investments with a view to transactions in investments;
- (f)
- (g)
- (5)
the staff member has managerial responsibilities for the activities of a control function;
- (6)
the staff member has managerial responsibilities for the prevention of money laundering and terrorist financing;
- (7)
the staff member is responsible for managing a material risk within the firm;
- (8)
in a firm that has permission for carrying on at least one of the regulated activities in (4)(a) to (g), the staff member is responsible for managing one of the following activities:
- (a)
information technology;
- (b)
information security; and/or
- (c)
outsourcing arrangements of critical or important functions as referred to in article 30(1) of the MiFID Org Regulation; and
- (a)
- (9)
the staff member has authority to take decisions approving or vetoing the introduction of new products.
1The FCA considers the following are key indicators that the professional activities of a staff member (X) have a material impact on the risk profile of the firm or of the assets that the firm manages for the purposes of SYSC 19G.5.1R:
- (1)
there is no sufficiently senior and experienced material risk taker who supervises X on a day-to-day basis or to whom X reports;
- (2)
X is responsible for key strategic decisions; and
- (3)
X is responsible for significant revenue, material assets under management or for approving transactions.
1The FCA expects individuals in the following roles would usually be categorised as material risk takers:
- (1)
in relation to portfolio management business, heads of key areas including equities, fixed income, alternatives, private equity;
- (2)
heads of investment research;
- (3)
individuals responsible for a high proportion of revenue;
- (4)
senior advisors where they can exert key strategic influence;
- (5)
chief market strategists, where media profile is linked to reputational risk and risk to market integrity;
- (6)
heads of a trading or broking desk; and
- (7)
all individuals with responsibility for information technology, information security and outsourcing where there is not a single person with responsibility for all three areas. For example, if there is a chief operating officer and a chief information technology officer who are both equally senior and have shared responsibility for these areas, then both should be identified as material risk takers.
- (1)
1A firm should update its assessment under SYSC 19G.5.2R as necessary throughout the year.
- (2)
It is important that firms consider all types of roles that may have a material impact on the firm’s risk profile or on the assets it manages. The categories of staff referred to in SYSC 19G.5.3R are intended to be a starting point only. A firm should develop its own additional criteria to identify further individuals based on the specific types of activities and risks relevant to the firm.
- (3)
In identifying its material risk takers, a firm should consider all types of risks involved in its professional activities. These may include prudential, operational, market, conduct and reputational risks.
- (4)
The decisive factor when identifying material risk takers is not the name of the function or role, but the authority and responsibility held by the individual.
- (1)
1If a non-SNI MIFIDPRU investment firm is part of an FCA investment firm group to which prudential consolidation applies, its material risk takers must be identified at both individual and consolidated level.
- (2)
The UK parent entity of a firm is responsible for the material risk taker identification process at a consolidated level and must identify as material risk takers:
- (a)
all staff members whose professional activities have a material impact on the risk profile of the investment firm group; and
- (b)
all staff members of an undertaking in the investment firm group (‘undertaking A’) whose professional activities have a material impact on:
- (i)
the risk profile of another undertaking within the investment firm group to whom the MIFIDPRU Remuneration Code applies on an individual basis (‘undertaking B’); or
- (ii)
the risk profile of any assets managed by undertaking B.
- (i)
- (a)
1It may be helpful for the UK parent entity to coordinate the process for identifying material risk takers across the group entities.
Exemption for individuals
- (1)
1The provisions in (2) do not apply in relation to a material risk taker (X), where X’s annual variable remuneration:
- (a)
does not exceed £167,000; and
- (b)
does not represent more than one-third of X’s total annual remuneration.
- (a)
- (2)
The provisions referred to in (1) are:
- (a)
SYSC 19G.6.19R to SYSC 19G.6.21G (Shares, instruments and alternative arrangements);
- (b)
SYSC 19G.6.22R and SYSC 19G.6.23G (Retention policy);
- (c)
SYSC 19G.6.24R to SYSC 19G.6.29R (Deferral); and
- (d)
SYSC 19G.6.35R(2) (Discretionary pension benefits).
- (a)
- (1)
1SYSC 19G.5.9R applies only to material risk takers of non-SNI MIFIDPRU investment firms that do not fall within SYSC 19G.1.1R(2).
- (2)
A non-SNI MIFIDPRU investment firm not falling within SYSC 19G.1.1R(2) should therefore assess whether staff members are material risk takers before applying the thresholds in SYSC 19G.5.9R.
- (3)
As the provisions listed in SYSC 19G.5.9R(2) don’t apply on a consolidated basis (see 19G.1.18R(4)(b)), the exemption for individuals in SYSC 19G.5.9R(1) will not be relevant on a consolidated basis.
1When considering whether an individual that becomes a material risk taker at a point during the firm’s performance period falls within SYSC 19G.5.9R, a firm must:
- (1)
apply the full £167,000 variable remuneration threshold;
- (2)
apply the requirement that the variable remuneration must not be more than one-third of the individual’s total remuneration to the relevant portion of the total remuneration paid for the part of the performance period that the individual is a material risk taker at that firm; and
- (3)
include any guaranteed variable remuneration, for example a ‘sign-on bonus’, in the individual's variable remuneration for the part of the performance period that the individual is a material risk taker at that firm.
- (1)
1An individual may become a material risk taker at any point during the firm’s performance period, either by changing role within the firm or by joining the firm.
- (2)
The effect of SYSC 19G.5.11R is illustrated by the following example:
An individual (‘X’), becomes a material risk taker 6 months into the firm’s performance period. X receives annual fixed remuneration of £900,000. This means X will receive £450,000 for the 6 months of the performance period for which X is a material risk taker. X receives variable remuneration of £100,000 in respect of the first 6 months. X falls below the thresholds in SYSC 19G.5.9R because X’s variable remuneration of £100,000 is:
- (a)
less than the £167,000 threshold in SYSC 19G.5.9R(1), and
- (b)
less than one-third of the £450,000 fixed remuneration received (which would be £150,000) for the purposes of SYSC 19G.5.9R(2).
- (a)
1The FCA considers it good practice for a firm to consider whether applying any of the rules applicable to material risk takers to other members of staff would contribute to sound risk management or a healthy firm culture.