Remuneration: financial services
Updating authors: Nick Thorpe and Neil Johnston
Consultant editors: Bridget Barker and Paul Ellison
- The Financial Services Authority (FSA) (the predecessor to the Financial Conduct Authority (FCA)), introduced the original Remuneration Code on 1 January 2010 following concerns related to the remuneration policies of firms raised after the 2008/09 financial crisis. (See The Remuneration Code)
- The Remuneration Code has been substantially revised and its scope extended since it was first introduced. It is now set out in six separate codes (Remuneration part to PRA Rulebook; FCA SYSC 19A; FCA SYSC 19B; FCA SYSC 19C; FCA SYSC 19D; and FCA SYSC 19E).
- The key aim of all the codes is to ensure that firms have risk-focused remuneration policies that are consistent with and promote sound and effective risk management. The codes take into account the remuneration requirements imposed by various EU Directives. (See The Remuneration Code)
- All banks, building societies and investment firms designated by the Prudential Regulation Authority (PRA) and IFPRU firms authorised by the FCA are covered by one or more of the codes. Alternative investment fund managers (AIFMs), UK UCITS management companies and BIPRU investment firms authorised by the FCA are also covered. (See Which firms are covered by the Remuneration Code?)
- The focus of this chapter is on the rules contained in the Remuneration part to the PRA Rulebook and SYSC 19D (governing dual-regulated firms) of the FCA Handbook. These rules apply to all material risk takers, including senior managers designated under the Senior Managers Regime from 2016. (See Which individuals are covered by the Remuneration Code?)
- FCA SYSC 19D.3 contains 12 Remuneration Principles (See Principles of the Remuneration Code). These principles apply to all banks, building societies and investment firms and govern their remuneration structures (See Remuneration structures). Broadly similar principles apply to alternative investment fund managers (See The Alternative Investment Fund Managers - Remuneration Code), UK UCITS management companies (See UCITS Remuneration code), BIPRU firms and Solvency II insurance and reinsurance firms (see Solvency II).
- The PRA and FCA divide firms covered by the codes into three levels and adopt a different proportionate approach to the implementation of the Remuneration Principles depending on the internal organisation, skill, scope and complexity of activities carried out by the firm. (See Proportionality)