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Compound Growth

14th April 2016

Remuneration Codes applicable to those in Financial Services

The Financial Conduct Authority has a number of Remuneration Codes that certain regulated firms must adhere to. These remuneration codes set out the standards and policies required to be met by firms with regards to setting pay and bonus awards for staff.

Purpose of Remuneration Codes:

In accordance with the FCA’ statutory objective on enhancing market integrity and protecting consumers, the aims of these Remuneration Codes is to:

Discourage excessive risk taking and short-termism
Encourage more effective risk management;
Ensure a greater alignment between risk and individual reward; and
Support positive behaviours and a strong an appropriate conduct culture within firms.

Current Financial Services Remuneration Codes:

Last summer, the UK Regulators – the FCA and PRA – introduced a New Remuneration Code applicable to dual regulated firms increasing the number of Remuneration Codes to four. With the implementation of UCITS V in March 2016, another Remuneration Code for UCITS has now been added, bringing the total to five.

Each code is applicable to a different type of firm and, according to the FCA, these currently apply to over 3,000 firms. Within these firms are banks, building societies, large alternative investment fund managers and investment firms to which the Capital Requirements Directive (CRD) is applicable, plus brokers, broker-dealers, asset managers such as hedge fund managers and UCITS investment firms, firms involved in venture capital, those providing financial advice and multilateral trading facilities (MTFs).

The regulator’s current Remuneration Codes are as follows:

SYSC 19A – Deposit Taker and Investment firms
SYSC 19B – Alternative Investment Fund Managers
SYSC 19C – BIPRU Investment firms
SYSC 19D - Dual-regulated firms
SYSC 19E - UCITS

There have been recent developments issued by both ESMA in relation to Remuneration Guidelines for UCITS Managers and the EBA with regards to sound Remuneration Policies for CRD Investment Firms.

Remuneration Code Requirements:

In essence, the codes each require that firms make sure their remuneration policies and practices are consistent with promoting sound and effective risk management. In addition, they each require that a percentage of a bonus must be deferred for a specified period of time and that a percentage of a bonus must be made in shares, share-linked instruments or other non-cash instruments which are subject to an appropriate retention period.

Furthermore, senior management is tasked with reviewing the remuneration policy and disclosing details of these policies at least annually.

Remuneration Proportionality:

The FCA advises that they have adopted a “proportionate approach to implementing the Remuneration Codes and Remuneration Disclosure” meaning that firms may implement the Remuneration Codes in an approach that is suitable to the size and scope of the firm.

Whilst some features of the Remuneration Codes might apply to a firm as a whole, other requirements might apply mainly to material risk takers (MTRs) or ‘Remuneration Code Staff’, these being individuals in:

 senior management

 staff in control functions and risk takers; and

 those earning in the same remuneration bracket

Compliance Support & Assistance

If should require any assistance with regards to your Remuneration requirements including reviewing your Remuneration Policy and Remuneration Disclosure requirements, please contact our experienced compliance specialists, who would be happy to help.