FCA published a policy statement (PS20/16) that sets out final rules on remuneration for dual-regulated firms, along with the revised versions of the relevant guidance documents. In August 2020, FCA proposed to amend the dual-regulated firms remuneration code and relevant non-handbook guidance, in line with the Capital Requirements Directive (CRD) 5. PS20/16 also summarizes the feedback received during the consultation period and FCA’s response to the feedback. The new rules and guidance will come into force on December 29, 2020. Firms are required to apply the new rules and guidance from the next performance year starting on or after December 29, 2020.
FCA is amending the dual-regulated firms' Remuneration Code and the relevant non-Handbook guidance to reflect the changes made by CRD 5. The finalized non-handbook guidance documents are general guidance on proportionality and dual-regulated firms and investment firms' Remuneration Codes (SYSC 19A and SYSC 19D)—the frequently asked questions on remuneration. The amendments include the following:
- Adding categories of staff who must be included as material risk-takers
- Replacing the current proportionality thresholds with exemptions from some remuneration rules for firms below a certain size and for individuals with remuneration below a certain level
- Amending the criteria for assessing whether a UK branch of a third-country firm is in scope of application of certain rules
- Amending the minimum deferral and claw-back periods
- Introducing a new requirement for firms to have gender neutral remuneration policies and practices
- Permitting listed firms to award variable remuneration in the form of share-linked instruments and equivalent non-cash instruments
FCA is also introducing changes to ensure that the dual-regulated firms' Remuneration Code remains effective after the end of the implementation period following the exit of UK from EU. This includes addressing deficiencies in the dual-regulated firms' Remuneration Code and converting certain thresholds that are in Euros to Sterling. These amendments will come into force from January 01, 2021.
The amendments to the dual-regulated firms' Remuneration Code will help to strengthen the remuneration framework for credit institutions and designated investment firms. The final rules and guidance on remuneration for dual-regulated firms remain broadly consistent with those of PRA, while supporting the objectives of FCA. These changes will ensure that firms can have stronger risk management, implement higher levels of individual accountability, and better incentivize their staff to make decisions not involving short-term or excessive risks. This in turn will contribute to reducing the number of misconduct incidents in these firms and, where misconduct does occur, the level of harm it causes.
- General Guidance on Proportionality
- Dual-Regulated Firms Remuneration Code: FAQs
- Investment Firms Remuneration Code: FAQs
Keywords: Europe, UK, Banking, Securities, Remuneration, CRD5, Dual Regulated Firms, Basel, Governance, Operational Risk, PRA, FCA
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