On 12 May 2023, the FCA published Consultation Paper 23/11 ‘Remuneration: Enhancing proportionality for dual-regulated firms’ (CP23/11).
The FCA implemented remuneration provisions for dual-regulated firms in the dual-regulated firms Remuneration Code (SYSC 19D). These requirements are similar to PRA rules in the Remuneration Part of its Rulebook. The FCA has three other Remuneration Codes. These apply to investment firms who are MIFIDPRU firms (SYSC 19G), Alternative Investment Fund Managers (SYSC 19B), and to companies that manage undertakings for collective investment in transferable securities (SYSC 19E).
Under the terms of the EU Withdrawal Agreement the UK transposed the fifth iteration of the Capital Requirements Directive (CRD V) which contained the EU’s latest updates to prudential requirements and governance standards for credit institutions and investment firms.
Following the changes introduced through the introduction of the CRD V, the FCA and the PRA have seen evidence that the current remuneration regime may be burdensome for some smaller, less complex dual-regulated firms.
Following publication of a joint FCA and PRA consultation paper in December 2022 regarding removal of the bonus cap (FCA CP22/28), in February 2023 the PRA published a consultation proposing changes to the Remuneration Part of its Rulebook (PRA CP5/23). Having assessed the PRA’s proposals the FCA has issued CP23/11 which contains proposals to update its rules and relevant non-Handbook guidance to ensure its rules remain broadly consistent with the PRA’s rules.
In Chapters 3 and 4 of CP23/11, the FCA sets out its proposed amendments to SYSC 19D.
Such proposed changes include:
- Amending the proportionality thresholds which allow smaller, less complex dual regulated firms to be excluded from some of the remuneration rules by increasing the total assets threshold and changing the additional criteria that firms with over £4 billion of total assets must meet.
- Removing the requirement for smaller, less complex dual-regulated firms to apply the rules on malus and clawback.
The FCA is also proposing to make consequential amendments to its non-Handbook guidance:
- Finalised Guidance (FG) 20/4 General Guidance on Proportionality: The Dual‑regulated firms Remuneration Code (SYSC 19D).
- FG20/5 Dual-regulated firms Remuneration Code (SYSC 19D): Frequently asked questions on remuneration.
- FG21/5 General guidance on the application of ex-post risk adjustment to variable remuneration.
All proposed amendments to the above non-Handbook guidance are shown in tracked changes in Appendices 2 to 4 of CP23/11.
The deadline for responding to CP23/11 is 9 June 2023.
The FCA intends to consider all the feedback and aims to publish a Policy Statement with final rules and guidance in Q4 2023.
If firms have already responded to PRA CP5/23, firms can respond to CP23/11 by sharing their response to PRA CP5/23.