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
Previous ArticleEC Amends Rule on Deduction of Software Assets from CET1 Items
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.