The risk management framework must include sound remuneration processes, practices and procedures, and controlling body-approved remuneration policies, which must—
| (a) |
promote sound and effective risk management; |
| (b) |
not create incentives to relax risk standards; |
| (c) |
be duly documented and reviewed at least on an annual basis; |
| (d) |
be designed to align the level and structure of remuneration with prudent risk management; |
| (e) |
take into consideration prospective risks as well as existing risks and risk outcomes; |
| (f) |
stipulate that pay out schedules must be sensitive to the time horizon of risks; |
| (g) |
in the case of variable remuneration, take due account of possible mismatches of performance and risk periods; |
| (h) |
provide that the level of remuneration must be adequate in terms of responsibility as well as in comparison to the level of remuneration in the business areas; |
| (i) |
be subject to independent audit, on an annual basis, and submit the results of the audits to the Authority; |
| (j) |
be linked to longer-term capital preservation, and the financial strength of the central counterparty, which, among others, means that— |
| (i) |
the variable remuneration payments must be appropriately deferred and payment may not be finalised over short periods whilst risks are realised over long periods; and |
| (ii) |
the mix of cash, equity and other forms of remuneration must be duly aligned with the central counterparty’s exposure to risk; |
| (k) |
incorporate and promote appropriate risk-adjusted performance measures, that is, remuneration must acknowledge all relevant risks so that remuneration is balanced between the profit earned and the degree of risk assumed in order to generate the profit; |
| (l) |
not be unduly linked to short-term accounting profit generation; |
| (m) |
ensure that staff engaged in the relevant financial and risk control areas have appropriate authority and are remunerated in a manner that is independent of the business areas they oversee, and commensurate with their function in the central counterparty; |
| (n) |
promote adequate disclosure to stakeholders, that is, the central counterparty must disclose clear, comprehensive and timely information regarding the central counterparty’s remuneration practices to— |
| (i) |
facilitate constructive engagement with all relevant stakeholders; |
| (ii) |
enable stakeholders to evaluate the quality of support for the central counterparty’s strategy, objectives and risk appetite; |
| (o) |
ensure appropriate controlling body and senior management oversight and involvement; |
| (p) |
include adequate internal controls to produce any data or information which might be required on a consolidated basis; |
| (q) |
be subject to regular monitoring and review, and relevant testing, to ensure that they remain relevant and current. |
Statistics Act, 1999
