All required disclosures (see below) will need to be:
- easy to understand, using clear language (and, where appropriate, diagrams);
- published at least annually, at the same time as the firm's annual financial statements (although intra-year material changes may necessitate more frequent disclosures); and
- available and easy-to-find on the firm's website (or, if it does not have a website, otherwise freely available).
In summary, the FCA's proposals regarding disclosure are that:
- All firms will be required to make some disclosure regarding their remuneration policies and practices – these will be proportionate to the size of the firm and will contain qualitative and quantitative information. Firms will not, as the FCA had previously suggested, be required to publish the ratio they have set between variable and fixed remuneration.
- All non-SNIs will be required to disclose information about their:
- Risk management and governance arrangements;
- Own funds (i.e., regulatory capital);
- Own funds requirements (i.e., regulatory capital requirements);
- Investment policy (larger non-SNIs only).
- Any SNIs which have issued additional Tier 1 (AT1) instruments must disclose information about their risk management arrangements.
The disclosure requirements applicable to non-SNIs as summarised above will also apply to the UK parent entity of an FCA investment firm group which is subject to prudential consolidation under MIFIDPRU and is treated as a non-SNI.
All firms subject to a disclosure requirement will be permitted to comply with the qualitative requirements in a manner appropriate to their size, internal organisation and the nature, scope and complexity of their activities. This element of proportionality should allow firms some degree of flexibility with regards to such disclosures.
Aside from the disclosures relating to the firm's governance arrangements, there are no proposals at this stage in relation to environmental, social and governance (ESG) matters: the FCA will be consulting on these separately.
More detail on the proposed disclosures is set out below.
All firms (SNIs and non-SNIs) will be required to disclose a summary of:
- Their approach to remuneration for all staff;
- The objectives of their financial incentives;
- The decision-making procedures and governance around the development of their remuneration policies and procedures.
Firms will be also be required to disclose prescribed, key characteristics of their remuneration policies and practices. For SNIs this will be restricted to the components of their remuneration, and their categorisation as fixed or variable, together with a summary of financial and non-financial criteria used to assess performance. Non-SNIs will be required to disclose more, for instance, how malus and clawback are applied and the policies and criteria applied for awards of guaranteed variable remuneration and severance pay. In line with the principle of proportionality, the largest non-SNIs will be subject to additional disclosure obligations regarding its deferral and vesting policy.
All non-SNIs will have to publish the types of staff they have identified as material risk takers (MRTs). But in a welcome reversal of the position that the FCA had previously adopted in PS21/9, they will not be required to disclose publicly the ratio they are required by the rules to set between the variable and fixed components of total remuneration.
Firms must publish quantitative remuneration disclosures. All firms will be required to reveal the total amount of remuneration they have awarded to all staff, split into fixed and variable remuneration. Non-SNIs will additionally have to show those amounts further broken down between senior management, other MRTs and other staff, together with information on awards made to MRTs. Again, the largest non-SNIs will be required to make to further, granular, quantitative disclosures.
Risk management disclosures
All non-SNIs (and those SNI firms that issue AT1 instruments) will be required to disclose their risk management objectives and policies for the categories of risk addressed by the rules governing own funds requirements, concentration risk and liquidity in MIFIDPRU. No template is provided, but the FCA proposes that disclosures should include a summary of the relevant potential for harm posed by the firm's business strategy (in respect of which the ICARA process may help) and how the firm intends to address the risks.
Disclosures relating to own funds
The FCA will be introducing a template which includes:
- a table for the composition of own funds;
- a table for reconciliation with capital in the balance sheet; and
- a free text field in which, if relevant, the firm can describe the main features of the own funds instruments issued by the firm.
Disclosures relating to own funds requirements
No template is prescribed. Firms will be required to disclose:
- the amount of their fixed overheads requirement (FOR);
- their K-factor requirement (for non-SNIs), broken down into three groupings:
- the sum of K-AUM, K-CMH and K-ASA – i.e., assets for which the firm is responsible;
- the sum K-DTF and K-COH – i.e. execution activity undertaken by the firm (our July briefing on the FCA's second policy statement, PS21/9, referred to the fact firms that execute orders on behalf of clients in their own name, but without dealing on own account, will now be caught by K-DTF as regards that activity); and
- the sum K-NPR, K-CMG, K-TCD and K-CON – i.e., exposure-based risks.
- Summary of their approach to assessing the adequacy of their own funds required for their ongoing operations and during wind-down, as required by the ICARA process (no quantum is required).
Disclosures of the firm's governance arrangements
All non-SNI firms will be required to publish a summary of how they comply with the requirement in SYSC to ensure that their management body defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the firm.
Disclosure as to whether the firm has a risk committee
All non-SNIs will be required to disclose:
- Whether they have a risk committee (even if they are not required to have one);
- Whether they are required to establish a risk committee (only the largest non-SNIs are required to do so); and
- If they are so required, whether they have a waiver or modification from the FCA releasing them from that obligation.
Disclosure of other directorships
All non-SNIs will be required to disclose, in respect of each member of the management body, the number of separate directorships held by that person. This should be broken down into executive and non-executive directorships. The concept of "significant IFPRU firms" will be preserved in the rules, but under a new name of "significant SYSC firms". The firms will be subject to additional disclosures.
Disclosure of diversity policy
All non-SNI firms will be required to publish a summary of their approach to diversity on their management body, setting out the objectives of that policy and any targets set and the extent to which those objectives and targets have been met. Where they have not been met, this must be explained together with the firm's suggested remediation.
This disclosure reflects the importance that FCA clearly attaches to diversity within financial services firms - see our briefing on the discussion paper that the regulator recently co-authored with the PRA and the Bank of England on diversity and inclusion, and to which it refers in its consultation paper.
Larger non-SNIs only: disclosures relating to the firm's investment policy in relation to listed instruments
Where the firm is a larger non-SNI and holds more than 5% of the voting rights in a company whose shares are traded on a regulated market, it will be required to make certain disclosures as specified by a template. A firm will be a larger non-SNI if it exceeds the relevant thresholds for risk, remuneration and nomination committees set out in MIFIDPRU 7 (i.e., broadly, where the firm's on-balance sheet assets and off-balance sheet items, on a rolling average basis over the previous 4 years, is £100 million or less or £300 million or less, subject to conditions).