FCA Revises Rules on Remuneration Code to Reflect CRD5
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.
Related Links
- PS20/16
- 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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
EC Amends Rule on Deduction of Software Assets from CET1 ItemsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.