Structuring a PRA MRT Identification That Withstands Exclusion Challenge

The MRT identification exercise is one of the few remuneration processes where the PRA will test both your methodology and your judgement in the same conversation. Exclusions are where that scrutiny concentrates. If your rationale for removing an individual who meets the quantitative criteria is thin, late, or inconsistent with how the role is actually paid and governed, expect the supervisor to push back, and expect that pushback to shape your next SREP cycle.

Start with the population, not the exclusions

The common failure mode is to run the quantitative and qualitative criteria, produce a long list, and then work backwards from a target headcount. Supervisors can see this pattern immediately: the exclusion memos look templated, the risk impact assessments are generic, and the Remuneration Committee pack arrives with a conclusion already formed.

Instead, build the gross population first under SYSC 19D and the relevant PRA rulebook provisions, document every individual captured by qualitative criteria, quantitative criteria, or both, and only then begin the exclusion analysis. The gross number itself is a supervisory data point. Firms that report a credible gross population and a well-evidenced net population are treated very differently from firms whose net number arrives without visible workings.

Build the exclusion case on risk impact, not role description

The PRA expects exclusion rationales to address whether the individual's professional activities have a material impact on the firm's risk profile. That is a substantive test, not a title test. A strong exclusion file contains:

• A description of the role's actual decision rights, including any delegated authorities, committee memberships, and mandate limits.
• Quantified risk exposures the individual can create, approve, or materially influence, expressed in the firm's own risk taxonomy (credit, market, operational, conduct, liquidity).
• Evidence of the controls that constrain those exposures, and why those controls make the residual risk impact immaterial.
• A comparison against the firm's materiality thresholds, with those thresholds themselves justified against the firm's size and risk profile.

What weak files look like: a one-paragraph narrative asserting that the individual does not take material risk, with no quantification and no reference to the firm's own risk appetite statement.

Treat control function heads with particular care

Heads of Risk, Compliance, Internal Audit, and Finance are frequent exclusion battlegrounds. The PRA's starting position is that these roles usually are MRTs because of their influence over the control environment. Exclusion on the basis that they do not take revenue risk misreads the test. If you are excluding a control function head, the file needs to demonstrate why their influence over the firm's risk profile is, in substance, limited, and that argument is rarely available at Head of Function level in a PRA-regulated bank.

Governance trail: three documents that must align

Supervisors will ask for the methodology paper, the individual exclusion memos, and the Remuneration Committee minutes. They will read them together. If the methodology describes a materiality threshold of X and the exclusion memos apply Y, or if the RemCo minutes record a different population than the methodology produces, the exercise loses credibility immediately.

Assign one owner for version control across all three documents. Have the Chief Risk Officer attest to the risk impact analysis in writing. Record the RemCo's challenge, not just its conclusion.

Prepare for the specific questions you will be asked

The supervisory questions are predictable: how did you set your business unit materiality thresholds, how did you treat individuals just below the EUR 750,000 quantitative trigger, how did you handle matrix-managed roles, and how did last year's identified MRTs who are not on this year's list come off the list. Have the answers written down before the request arrives.

Next step

Before sign-off, pressure-test your exclusion file against the three battleground areas above. If a supervisor could reasonably ask a question your file cannot answer in writing, the exercise is not ready for RemCo.

Frequently Asked Questions

How much documentation is enough for an individual exclusion?

Enough that a supervisor reading only that memo, with no other context, could understand the role, the risk impact test applied, the evidence considered, and why the conclusion follows. In practice this is two to four pages per excluded individual, not a paragraph.

Can we rely on prior-year exclusion rationales?

Only if you have re-tested the role against current year activities, mandates, and risk appetite. Roll-forward exclusions without fresh evidence are a common finding in PRA remuneration reviews.

Who should sign off the final MRT list?

The Remuneration Committee, on the recommendation of HR, Risk, and Compliance acting jointly. The CRO should provide a specific attestation on the risk impact analysis underpinning exclusions.

What happens if we identify an MRT mid-year?

They become subject to the Remuneration Code from the point of identification, with pro-rated application of deferral and instrument rules. Document the trigger event and the date, and notify the individual in writing.

How should we handle group-wide roles sitting outside the UK entity?

Apply the test to the individual's impact on the PRA-regulated entity specifically. Group seniority does not automatically bring someone into the UK MRT population, but influence over the UK entity's risk profile does, regardless of booking location.