The Financial Conduct Authority (FCA) publishes its final rules and updated Remuneration Policy Statement template under the new Investment Firm Prudential Regime (IFPR)

Firms in scope:

• Any MiFID investment firm authorised and regulated by the FCA that is currently subject to any part of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR), including BIPRU and IFPRU firms, specialist commodities dealers, oil and energy market participants.
• Collective Portfolio Management Investment Firms (CPMIs).
• Regulated and unregulated holding companies of groups that contain an investment firm authorised and regulated by the FCA and that is currently authorised under MiFID and/or a CPMI.

Timing: The IFPR requirements will come into effect for remuneration awarded in relation to performance periods beginning on or after 1 January 2022.

Overview: On 22 October 2021, after the FCA’s publication of its near-final rules under the new IFPR in July 2021, the FCA announced that it has now converted the near-final rules from the first two policy statements into final rules.

Following the publication of the near-final rules, no drafting changes have been made to the final remuneration requirements set out under the new SYSC 19G Remuneration Code.

In addition to the final rules, the FCA has also released a new Remuneration Policy Statement (‘RPS’) template for firms in scope of the IFPR which may be used to record how their remuneration policies and practices comply with the new Remuneration Code. There is no requirement to share this document with the FCA unless requested to do so.

Compared with RPS templates under existing regulatory regimes, the sections within the new template have been updated to reflect the specific IFPR provisions, most notably:

• General requirements – the requirement to provide detail around ensuring remuneration policies and practices are aligned to the firm’s business strategy, objectives and long-term interests has been expanded to capture how environmental, social and governance risk factors are taken into account in addition to a firm’s culture and values and also the long-term decisions of the investment decisions taken. The new RPS template also specifically requests details of the date on which the last central and independent internal review took place, including what the outcomes and any follow up actions were.
• Gender neutrality and discrimination – firms are now asked to outline how their remuneration policies and practices are gender neutral and do not discriminate on the basis of protected characteristics of an individual in accordance with the Equality Act 2010.
• Variable to fixed remuneration ratio – under the IFPR, firms must set an appropriate ratio between variable and fixed components of total remuneration. The RPS template requests firms to outline the maximum ratio determined upon; the roles to which it applies; whether there are different ratios for different categories of staff; whether the ratio(s) differ from the previous performance period; and the factors taken into consideration when determining the appropriate ratio(s).
• Standard vs extended remuneration requirements – The new template also makes a distinction between the standard and extended remuneration requirements, with only the applicable firms (i.e. the largest non-SNI firms) required to complete the section on extended remuneration requirements.
  
  For firms subject to the extended remuneration requirements, the FCA has expanded the detail required around the determination of retention periods and structure of the deferral schedule requesting detail of how firms have taken into account various factors such as the firm’s business cycle, the nature of its business and its risk profile when determining appropriate retention periods and deferral schedules.

Lastly, the FCA has issued Finalised Guidance on the application of ex-post risk adjustment to variable remuneration. This document replicates the FCA’s original guidance around the application of ex-post risk adjustment to variable remuneration published in July 2015, noting that the references have been updated to reflect the SYSC 19G Remuneration Code.

A link to our alert on the FCA’s near-final IFPR rules can be found here.

A link to the FCA’s full release can be found here.