CTRL 3.1.16 Specific obligations — remuneration policy

(1) An authorised firm’s governing body must establish and maintain, for itself and the whole firm, a remuneration policy appropriate to the nature, scale and complexity of the firm’s business.
Note Appropriate records must be kept of the firm’s remuneration policies and procedures — see GENE, rule 6.1.1.
(2) The policy must set out the firm’s remuneration arrangements, including:
(a) the objectives and structure of any performance-based component;
(b) performance measures that are in line with the firm’s risk management strategy;
(c) the forms and mix of remuneration; and
Examples
1 fixed and variable components
2 cash and equity-related benefits
3 termination payments.
(d) eligibility for, and the timing of, payments.
(3) The policy:
(a) must be aligned to the firm’s culture, its risk appetite statement, its long-term strategic direction and viability, financial goals and overall safety and soundness; and
Note For the requirement for a risk appetite statement, see rule 7.1.2 (5) (a).
(b) must appropriately balance risk and reward.
(4) The forms and mix of remuneration (in particular, performance-based remuneration) must be consistent with sound risk management.
(5) The timing of payments must take into account the timeframes within which risks associated with individuals’ performance are likely to materialise.
(6) The policy:
(a) must permit any performance-based component of an individual’s remuneration (or such a component of the remuneration of a class of individuals) to be deferred or reduced (including reduced to zero) if necessary:
(i) to protect the firm’s financial soundness; or
(ii) to respond to significant unexpected or unintended consequences of the firm’s activities; and
(b) if the policy provides for part of an individual’s remuneration to be based on performance, must provide for that part to be repayable to the firm by an individual who received it if the firm is later satisfied that:
(i) the individual failed to meet the relevant performance measures; or
(ii) by excessive risk-taking, he or she contributed significantly to a negative financial performance by the firm.
(7) The policy must prohibit an individual who has received deferred remuneration in the form of equity, or in any other form that is linked to the firm’s equity, from hedging his or her economic exposures to the resultant equity price risk before the equity or other remuneration is fully vested.
(8) A remuneration package offered by the firm (including any performance-based component):
(a) must encourage behaviour that supports the firm’s long-term financial soundness and risk management strategy;
(b) must align remuneration with prudent risk-taking; and
(c) must incorporate adjustments to reflect:
(i) the outcomes of the firm’s activities;
(ii) the risks related to those activities, taking account of the cost of the associated capital; and
(iii) the time necessary for the outcomes of those activities to be reliably measured.
(9) The governing body must periodically review the remuneration policy.

 

Derived from QFCRA RM/2020-4 (as from 1st July 2021)