In outline, all firms (including SNIs) will have to comply with a small number of basic remuneration requirements relating to remuneration policies and practices (i.e. relating governance and oversight, fixed and variable remuneration, restrictions on variable remuneration)("basic requirements"); beyond that, non-SNI firms will be subject to more detailed requirements (such as identifying material risk takers, the ban on guaranteed variable pay, malus and clawback)("standard requirements").
Only the largest non-SNI firms (i.e., for firms without a trading book, those with a rolling average of on- and off- balance sheet assets above £300m over the preceding four year period) would be required to meet the full remuneration requirements by complying with "extended remuneration requirements" (i.e. remuneration committee and pay-out process rules)("extended requirements").
The FCA has amended the application provision in the rules to refer to "performance periods" rather than "performance years" to allow for the fact that some firms have, e.g., quarterly performance periods rather than performance years. The new remuneration rules would enter into force on 1 January 2022. Firms will therefore have to apply the new rules from the start of their next performance period/year beginning on or after that date. Firms currently subject to IFPFRU or BIPRU Remuneration Codes should continue to apply those rules to performance periods preceding 1 January 2022.
In the final rules, the FCA has clarified that the MIFIDPRU Remuneration Code applies to carried interest arrangements and that carried interest must be valued at the time of its award. There is a new rule that provides that the requirements on pay-out, deferral, retention and ex-post risk adjustment only do not apply where: (a) the value of the carried interest is determined by the performance of the fund in which the carried interest is held; (b) the period between award and payment of the carried interest is at least 4 years; and (c) there are provisions for the forfeiture or cancellation of carried interest in certain situations (i.e., broadly, the material risk taker was responsible for significant losses or failed to meet fitness and propriety standards). The second and third criteria may be difficult to meet. The result is that the MIFIDPRU carried interest rules will be tougher than those applied to full-scope AIFMs under the UK AIFMD regime. The FCA has not accepted amendments proposed by industry groups which would have had the effect that carried interest arrangements would be deemed to meet the clawback rules without further adjustment. Firms will now need to review, and in some cases amend, their carried interest arrangements for UK staff.
The FCA has included guidance indicating a 3-year clawback period will be the appropriate starting period for all FCA investment firms.
The final rules confirm that CPMIs will have to apply the remuneration codes applicable to the types of business they conduct. Where a firm is subject to the MIFIDPRU Remuneration Code and, for instance, the AIFM Remuneration Code, it must comply with the most stringent of the relevant provisions. For instance, if a member of staff has responsibilities for both MiFID and non-MiFID business they will be a material risk taker for the purposes of the IFPR regime but also AIFM Remuneration Code Staff and will therefore be subject to both the MIFIDPRU Remuneration Code and the AIFM Remuneration Code. The firm will have to consider which requirement in each of the Codes is the most stringent on a provision by provision basis.
The EBA guidelines on sound remuneration policies under the EU IFD will not apply to FCA MiFID investment firms.