Remuneration code compliance: current requirements by firm type
The UK's remuneration code framework is fragmented across multiple sourcebook chapters, applying different requirements to different categories of firm. The Dual-Regulated Remuneration Code (SYSC 19D) applies to banks, building societies, and PRA-regulated investment firms; MIFIDPRU Remuneration Code (SYSC 19G) applies to most FCA-only regulated investment firms; AIFMD Remuneration Code (SYSC 19B) applies to alternative investment fund managers; and UCITS Remuneration Code (SYSC 19E) applies to UCITS management companies. The regimes have broadly similar structures — requiring remuneration policies that align incentives with risk management, identifying Material Risk Takers, imposing deferral and clawback requirements on variable remuneration, and requiring annual remuneration disclosure — but the specific thresholds, timelines, and technical requirements differ significantly.
Under the Dual-Regulated Remuneration Code, banks and PRA-regulated investment firms must defer at least 40% of variable remuneration for senior management and staff whose activities have a material impact on the firm's risk profile, with higher deferral rates (60%) for the most senior individuals. Deferred remuneration must vest over a period of at least three to five years and must be subject to malus (reduction of unvested awards) and clawback (recovery of vested awards) for defined periods following vesting. Post-Brexit, the FCA and PRA removed the EU bonus cap — which had restricted variable remuneration to 100% (or 200% with shareholder approval) of fixed remuneration — for most firms, though the rules on ratio of variable to fixed pay still require documented justification where awards are disproportionate.
Under MIFIDPRU Remuneration Code, MIFIDPRU investment firms are divided into three categories for remuneration purposes. Large and interconnected firms (MIFIDPRU Article 4(1)(a)) must apply the full code including deferral and instrument requirements; medium-tier firms have a more limited set of obligations; and small and non-interconnected (SNI) firms are subject only to the basic proportionality principles. The correct categorisation of the firm — which depends on its assets under management, on and off-balance sheet assets, and other metrics — is therefore the first step in any MIFIDPRU remuneration compliance analysis.
Material Risk Taker (MRT) identification is consistently identified as a weakness in supervisory reviews. Firms must identify all staff whose professional activities have a material impact on the firm's risk profile — this goes beyond senior managers and trading staff to include, in some cases, compliance, internal audit, and risk management staff whose decisions or advice materially affect the firm's risk position. MRTs must be identified using both qualitative and quantitative criteria, and the list must be reviewed annually and following any material changes to the firm's business model or reporting structure.
Remuneration governance and disclosure
Remuneration policies must be approved by the board (or a board-level remuneration committee where required) at least annually, and must be reviewed following any significant changes to the firm's business model or risk profile. Annual remuneration disclosures are required under MIFIDPRU and the Dual-Regulated Code, covering aggregate remuneration data for senior management and MRTs. The FCA has reviewed remuneration disclosures for compliance and has found that many disclosures are insufficiently granular and do not provide adequate information about the structure of remuneration or the application of risk adjustment mechanisms.