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MIFIDPRU 7.3 Risk, remuneration and nomination committees

Risk committee

MIFIDPRU 7.3.1R
  1. (1)

    1Subject to (2), a non-SNI MIFIDPRU investment firm to which this rule applies must establish a risk committee.

  2. (2)

    Subject to (3), a firm must ensure that:

    1. (a)

      at least 50% of the members of the risk committee are members of the management body who do not perform any executive function in the firm; and

    2. (b)

      the chair of the risk committee is a member of the management body who does not perform any executive function in the firm.

  3. (3)

    The requirements in (2) do not apply to a firm that, solely because of its legal structure, cannot have members of the management body who do not perform any executive function in the firm.

  4. (4)

    Members of the risk committee must have the appropriate knowledge, skills and expertise to fully understand, manage and monitor the risk strategy and the risk appetite of the firm.

  5. (5)

    The risk committee must advise the management body on the firm's overall current and future risk appetite and strategy and assist the management body in overseeing the implementation of that strategy by senior management.

  6. (5A)

    In order to assist in the establishment of sound remuneration policies and practices, the risk committee must, without prejudice to the tasks of the remuneration committee, examine whether incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings.2

  7. (6)

    Notwithstanding the role of the risk committee, the management body of a firm has overall responsibility for the firm’s risk strategies and policies.

MIFIDPRU 7.3.2G
  1. (1)

    1MIFIDPRU 7.3.1R(2) only applies to firms that are required to establish a risk committee under MIFIDPRU 7.3.1R(1).

  2. (2)

    The chair may be included for the purposes of calculating the 50% referred to in MIFIDPRU 7.3.1R(2)(a).

  3. (3)

    Where a firm has established a risk committee, its responsibilities should typically include:

    1. (a)

      providing advice to the firm's management body on risk strategy, including the oversight of current risk exposures of the firm, with particular, but not exclusive, emphasis on prudential risks;

    2. (b)

      developing proposals for consideration by the management body in respect of overall risk appetite and tolerance, as well as the metrics to be used to monitor the firm’s risk management performance;

    3. (c)

      overseeing and challenging the design and execution of stress and scenario testing;

    4. (d)

      overseeing and challenging the day-to-day risk management and the executive’s oversight arrangements;

    5. (e)

      overseeing and challenging due diligence on risk issues relating to material transactions and strategic proposals that are subject to approval by the management body;

    6. (f)

      providing advice to the firm’s remuneration committee, as appropriate, in relation to the development, implementation and review of remuneration policies and practices that are consistent with, and promote, effective risk management;

    7. (g)

      providing advice, oversight and challenge necessary to embed and maintain a supportive risk culture throughout the firm.

Remuneration committee

MIFIDPRU 7.3.3R
  1. (1)

    1Subject to (2), a non-SNI MIFIDPRU investment firm to which this rule applies must establish a remuneration committee.

  2. (2)

    The obligation in (1) will be deemed to be satisfied where:

    1. (a)

      the non-SNI MIFIDPRU investment firm is part of an investment firm group that is subject to prudential consolidation in accordance with MIFIDPRU 2.5; and

    2. (b)

      the UK parent entity has established a remuneration committee that:

      1. (i)

        meets the requirements of MIFIDPRU 7.3.3R(3) (read in conjunction with MIFIDPRU 7.3.3R(4));

      2. (ii)

        has the power to comply with those obligations on behalf of the non-SNI MIFIDPRU investment firm; and

      3. (iii)

        has members with the appropriate knowledge, skills and expertise in relation to the non-SNI MIFIDPRU investment firm.

  3. (3)

    Subject to (4), a firm must ensure that:

    1. (a)

      at least 50% of the members of the remuneration committee are members of the management body who do not perform any executive function in the firm; and

    2. (b)

      the chair of the remuneration committee is a member of the management body who does not perform any executive function in the firm.

  4. (4)

    The requirements in (3) do not apply to a firm that, solely because of its legal structure, cannot have members of the management body who do not perform any executive function in the firm.

  5. (5)

    A firm must ensure that the remuneration committee is constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity.

  6. (6)

    The remuneration committee must be responsible for preparing decisions regarding remuneration, including decisions which have implications for the risk and risk management of the firm and which are to be taken by the management body.

  7. (7)

    When preparing the decisions, the remuneration committee must take into account the public interest and the long-term interests of shareholders, investors and other stakeholders in the firm.

MIFIDPRU 7.3.4G
  1. (1)

    1MIFIDPRU 7.3.3R(3) only applies to firms that are required to establish a remuneration committee under MIFIDPRU 7.3.3R(1).

  2. (2)

    The chair may be included for the purposes of calculating the 50% referred to in MIFIDPRU 7.3.3R(3)(a).

Nomination committee

MIFIDPRU 7.3.5R
  1. (1)

    1A non-SNI MIFIDPRU investment firm to which this rule applies must establish a nomination committee.

  2. (2)

    Subject to (3), a firm must ensure that:

    1. (a)

      at least 50% of the members of the nomination committee are members of the management body who do not perform any executive function in the firm; and

    2. (b)

      the chair of the nomination committee is a member of the management body who does not perform any executive function in the firm.

  3. (3)

    The requirements in (2) do not apply to a firm that, solely because of its legal structure, cannot have members of the management body who do not perform any executive function in the firm.

  4. (4)

    A firm must ensure that the nomination committee:

    1. (a)

      is able to use any forms of resources the nomination committee deems appropriate, including external advice; and

    2. (b)

      receives appropriate funding.

MIFIDPRU 7.3.6G
  1. (1)

    1MIFIDPRU 7.3.5R(2) only applies to firms that are required to establish a nomination committee under MIFIDPRU 7.3.5R(1).

  2. (2)

    The chair may be included for the purposes of calculating the 50% referred to in MIFIDPRU 7.3.5R(2)(a).

Establishing committees at group level

MIFIDPRU 7.3.7G
  1. (1)

    1A firm may apply to the FCA for a modification under section 138A of the Act to permit the firm to establish a risk committee, remuneration committee, or nomination committee at group level instead of complying with the requirement on an individual basis.

  2. (2)

    The FCA may grant a modification under section 138A of the Act if:

    1. (a)

      compliance by the firm with the requirement to establish a committee on an individual basis would be unduly burdensome or would not achieve the purpose for which the rules were made; and

    2. (b)

      granting the modification would not adversely affect the advancement of any of the FCA’s objectives.

  3. (3)

    To be satisfied that granting the modification would not affect the advancement of any of the FCA’s objectives under (2)(b), the FCA would normally expect the firm to demonstrate that the committee established at group level:

    1. (a)

      meets the composition requirements in MIFIDPRU 7.3.1R(2), MIFIDPRU 7.3.3R(3) or MIFIDPRU 7.3.5R(2), as applicable; and

    2. (b)

      has members with the appropriate knowledge, skills and expertise in relation to the firm subject to the requirement to establish a committee.