On 5 December 2023, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) jointly published a Policy Statement (PS) on Remuneration: Enhancing proportionality for small firms (PRA PS16/23and FCA PS23/17).

In the PS, the PRA and the FCA provide feedback to responses to the PRA’s Consultation Paper CP5/23 – Remuneration: Enhancing proportionality for small firms and the FCA’s CP23/11 – Remuneration: Enhancing proportionality for dual-regulated firms, which were published in May 2023.

The PS also sets out the regulators’ final policy on changes to the remuneration rules for dual-regulated firms to enhance the proportionality of the remuneration requirements that apply to small firms. The changes are made through:

  • Amendments to the Remuneration Part of the PRA Rulebook (Appendix 1).
  • Amendments to the PRA’s Supervisory Statement SS2/17 – Remuneration (Appendix 2).
  • Amendments to the FCA Handbook: Senior Management Arrangements, Systems and Controls (SYSC) sourcebook (Appendix 3).
  • Amendments to FCA non-Handbook Guidance:
    • General Guidance on Proportionality: The Dual-regulated firms remuneration code (FG23/5) (Appendix 4).
    • Dual-regulation firms Remuneration Code (SYSC 19D) – Frequently asked questions on remuneration (FG23/4) (Appendix 5).
    • General guidance on the application of ex-post risk adjustment to variable remuneration (FG23/6) (Appendix 6).

The PS is relevant to UK banks, building societies, and PRA-designated investment firms, including third-country branches, which are subject to the Remuneration Part of the PRA Rulebook and the Dual-regulated firms Remuneration Code (SYSC 19D) of the FCA Handbook. It will also be of interest to solo-regulated investment firms that are members of a group to which the Dual-regulated firms Remuneration Code applies on a consolidated basis.

The changes set out in the PS will come into force on 8 December 2023 and will apply to a firm’s performance year starting on or after that date. The PRA Supervisory Statement SS2/17 and FCA non-Handbook guidance changes will also apply from 8 December 2023.