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FCA Investment Firms: Preparing for the new remuneration code regime

Posted on 12 May 2021

The FCA has published draft rules and guidance for a new single remuneration regime for MiFID investment firms, which will replace the existing IFPRU and BIPRU Remuneration Codes and related guidance.

Firms should take steps now to consider the impact of the new RemCode on their existing arrangements. The RemCode is still in draft - firms have until 28 May 2021 to give feedback – but it gives a clear indication of what to expect under the new regime. The RemCode will be finalised later this year, and will apply to performance years beginning on or after 1 January 2022.

Key takeaways

  • The new RemCode has three objective proportionality levels, with progressively more onerous rules applying to larger, more complex firms. Firms should check to see to what level of obligations will apply to them and their staff. It will no longer be possible to disapply any of the remuneration requirements on the basis of a general proportionality principle.
  • While there will be a sense of familiarity with the new RemCode provisions in many respects, there are differences, with more prescriptive requirements often being required for larger firms under the proposed new regime. Firms should not therefore assume that they will be able to simply continue with their existing remuneration approach and arrangements without conducting a proper review.
  • Malus and clawback will have to be applied by all non-SNI firms in relation to both short term and long term incentives.

Scope and application of the new RemCode

The new draft 'MIFIDPRU Remuneration Code' (SYSC 19G) applies a proportionality approach based on the size of the firm. Firms are classified as either:

  • Small and Non-Interconnected firms ('SNI firms'), which pose a lower risk of harm to customers and markets, or
  • non-SNI firms, which are larger, more complex firms.

SNI firms will only need to apply the 'basic remuneration requirements'.  Non-SNI firms will be divided into two categories depending on their size.  Most non-SNIs will be subject to the 'standard remuneration requirements' as well as the 'basic remuneration requirements', while the largest non-SNIs will also be subject to the 'extended remuneration requirements'. We describe the remuneration requirements below. 

Criteria for categorisation of firms


The FCA has previously consulted on the qualifying criteria for SNIs and has proposed the following quantitative criteria (subject to the outcome of the consultation):

Measure (MiFID activities only other than balance sheet total)


Assets under management

< £1.2 billion

Client orders handled – cash trades

< £100 million per day

Client orders handled – derivative trades

< £1 billion per day

Assets safeguarded and administered


Client money held


On- and off-balance sheet total

< £100 million

Total annual gross revenue from investment services

and activities

< £30 million

These thresholds are in addition to the requirement that the FCA investment firm must not be permitted to deal on its own account and (with the exception of the client money and client assets thresholds) should be assessed on a group basis where appropriate, taking account of the MiFID activities of other firms in the group.


All three levels of the remuneration requirements will apply to a non-SNI firm where:

  • the value of its on‑and off‑balance sheet assets over the preceding 4‑year period is a rolling average of more than £300m, or
  • the value of its on‑and off‑balance sheet assets over the preceding 4‑year period is a rolling average of more than £100m (but less than £300m), and it has trading book business of over £150m, and/or derivatives business of over £100m.

A non-SNI firm which is below these thresholds will need to apply the 'standard remuneration requirements' and the 'basic remuneration requirements'. 

There are transitional provisions where firms move between the different categories. 

FCA investment firm groups

Where prudential consolidation applies to an investment firm group then the relevant remuneration requirements will need to be applied at both the individual firm level and at the consolidated level. 

Where such a group contains entities subject to different levels of the remuneration requirements then the firms must apply the stricter requirements to material risk takers ("MRTs") who have a material impact on the risk profile of another entity in the group which is subject to the stricter requirements.  The same principle applies where entities within the group are subject to different remuneration codes, for example, the MIFIDPRU code and the AIFM remuneration code.

Where a MRT only works for a single entity in a group then that individual need only be subject to the remuneration requirements of that entity.

If the FCA has granted permission for a group to use the group capital test so that no prudential consolidation is required then each FCA investment firm in the group can apply the relevant remuneration requirements on an individual entity basis. 

Other groups

Where an FCA investment firm is in a group with a PRA-designated investment firm (but no credit institution) the group will be required to satisfy the consolidated requirements of the MIFIDPRU RemCode and the remuneration code applying to dual regulated firms, SYSC19D, following the principles described above for a FCA investment firm group. 

In a change from current practice, the FCA proposes that CPMIs that also carry out certain MiFID business will be required to apply the MIFIDPRU RemCode to the MiFID business of the CPMI.  This means that CPMIs will need to apply two different remuneration codes as their non-MIFID business is already subject to the AIFM or UCITS remuneration codes. Where a MRT works for both types of business then the stricter code should apply to that individual. 

Where an entity in a third country is part of an FCA investment firm group to which prudential consolidation applies then the MIFIDPRU RemCode will only apply to MRTs in that entity who oversee or are responsible for business activities that take place in the UK. 

What are the new RemCode requirements?

We set out below highlights of the draft MIFIDPRU Remuneration Code requirements:

Basic Remuneration Requirements - All firms

1. Remuneration policy must:

  • be proportionate to the firm's size, internal organisation, and the nature, scope and complexity of activities
  • be gender neutral (that is, based on equal pay for equal work or work of equal value)
  • be consistent with and promote sound and effective risk management
  • be in line with the firm's business strategy and objectives
  • contain measures to avoid conflicts of interest, encourage responsible business conduct and promote risk awareness/prudent risk-taking.

2. Governance and oversight:

  • Management body must periodically review the remuneration policy and is responsible for overseeing implementation
  • Control functions staff must be independent
  • Remuneration of risk and compliance senior staff must be directly overseen by remuneration committee/management body

3. Fixed and variable remuneration:

  • Clear criteria must define what is fixed and variable remuneration
  • Fixed/variable remuneration components must be appropriately balanced
  • Individual performance must take account of both financial and non-financial criteria

4. Restrictions on variable remuneration:

  • Variable remuneration must not impact the firm's ability to ensure a sound capital base
  • Firms receiving extraordinary public financial support must not pay any variable remuneration to the management body
Standard Remuneration Requirements (in addition to Basic Remuneration requirements) - All non-SNI firms

1. Performance assessment:

  • Performance-related variable remuneration of MRTs must take into account individual, business unit and overall firm performance
  • Performance assessment must be over a multi-year period

2. Restrictions on non-performance-related variable remuneration:

  • Guaranteed variable remuneration
  • Retention payments
  • Buy-out awards (subject to previous employer pay-out terms)
  • Severance pay (no reward for failure)

3. Ex ante and ex post risk adjustment:

  • Take into account all types of current and future risks when measuring performance to calculate bonus pools, and when awarding / allocating bonuses
  • Have in-year adjustments, malus and clawback arrangements in place
  • Set minimum malus and clawback periods
  • Determine triggers for malus and clawback (in addition to those expected by the RemCode)

4. Other requirements:

  • Set a ratio of fixed / variable remuneration for MRTs (but no maximum 'bonus cap')
  • Ensure remuneration policy is annually reviewed by control functions
  • Discretionary pension benefits must be in line with firm's business strategy, objectives, values and long term interests
  • Take all reasonable steps to ensure MRTs do not undermine remuneration rules
  • Don't pay variable remuneration through vehicles/methods that facilitate non-compliance
Extended Remuneration Requirements (in addition to Basic and Standard Remuneration requirements) - Larger non-SNI firms only

1. Pay-out of variable remuneration for MRTs:

  • At least 50% paid out in shares/other instruments
  • Must be subject to an appropriate retention policy

2. Deferral and vesting for MRTs:

  • At least 40% variable remuneration deferred for at least 3 years
  • At least 60% deferred where particularly high amount, and always if it is £500,000 or more
  • Must not vest faster than pro rata and only after the first year
  • No dividends or interest payable during deferral period

3. Discretionary pension benefits for MRTs:

  • Where MRT leaves the firm before retirement, firm must hold pension benefits for 5 years
  • Where MRT retires, firm must pay out the pensions benefits and MRT must retain them for 5 years

4. Remuneration committees:

  • Chair and at least 50% of members must be non-execs of management body
  • Modification of requirement possible for group level committees
Points to note
  • As previously mentioned, in non-SNIs, specific remuneration rules in the standard (and, if applicable) extended remuneration sections apply to MRTs. The draft RemCode lists criteria for identifying MRTs, but this is only a starting point, with firms being required to identify other individuals who have a material impact on the firm's risk profile/managed assets. Firms should therefore review their MRT population to see whether this should be updated.
  • As is the case with the existing RemCodes, there will be a de minimis exception for MRTs who earn below a certain amount. The exception will apply to MRTs with variable remuneration of £167,000 or less and whose variable remuneration makes up one-third or less of their total remuneration. MRTs who meet these criteria will be exempt from rules on deferral and pay out in shares, and some of the rules regarding discretionary pension benefits.
  • Firms should consider the potential impact of the draft RemCode rules on their existing remuneration arrangements. Two examples where this might happen are:
    • the rule that a firm must not pay interest or dividends on deferred variable remuneration to a MRT. Where this a change from current practice, affected individuals will receive less overall remuneration;
    • whether the requirement for malus and clawback provisions in relation to all variable remuneration of MRTs in non-SNIs will require more extensive performance adjustments than a firm may currently apply, particularly in relation to annual bonuses. 
Remuneration reporting

There will be new FCA reporting forms tailored to the three levels of remuneration requirements.  

Seminar and contacts

We will be hosting a seminar on 8th June to discuss the impact of the proposed new RemCode. If you are interested in attending please click here. Or, if you would otherwise like to discuss the impact of the draft new RemCode in more detail, please get in touch with:

Neil Sharpe

David Cummings

Adam Turner 

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