The day passporting became a part of the HR vocab

By Jon Terry

Since their introduction, regulations impacting on remuneration have been high on the HR agenda in financial services. And taking commercial, compliant and sustainable decisions in an increasingly complex environment has been no easy task. Along the way, HR professionals have needed to equip themselves with a repertoire of regulatory nouns and acronyms (e.g. UCITS V, MRT, RTS), become quasi-experts in broader regulatory affairs (sorry, what’s a PVA?!) and best friends with colleagues in Risk, Compliance and Finance.

The UK vote to leave the EU is likely to have a huge impact on the way all firms comply with the remuneration regulations. The biggest catalyst for change is likely to depend on the extent to which financial services firms can continue to provide services between both sides of the Channel. And it’s for this reason that “passporting” is about to be the latest regulatory term to become a part of the HR vocab.

As shameful as it is for me to confess, it’s taken me some time to understand what passporting is and how it works. For those of you not in the know, here’s a quick download.  Passporting enables an entity within the EEA to establish branches and to provide certain services in other EEA territories while being largely regulated from a single “EEA home”. These branches do not need to be subject to separate authorisation in their respective locations. This is much in the same way I have a passport from my home country in the UK and use it to travel to any country in Europe without having to complete separate landing cards.

Thankfully, as a HR consultant, it took me less time to understand how passporting can impact remuneration regulations. So what impact could restricting/removing passporting have on the application of remuneration rules?

Supervision of passported activities

Firms may be required to have their passported activities subject to the remuneration rules in local territories rather than in their host country. To illustrate the possible implications, passporting currently allows a German branch of a UK firm to apply the PRA/FCA remuneration rules. As such, the bonus cap may apply only to MRTs. Under the German rules, this branch would need to apply this to all employees.

Corporate restructuring and movement of people

Firms may consider restructuring parts of its business and relocating parts of its workforce as a result of any restriction on passporting. Any changes may impact what remuneration regulations apply and by which regulator.

Clearly, we will know more as the negotiations begin to land. In the meantime, the challenge for HR will be to understand how the business currently uses its passports, the potential impact of the regulations under different scenarios, and perhaps most challenging of all, ensuring “remuneration regulation” remains a part of the lexicon for those in the firm responsible for life after Brexit.