UK: FSA announces plans to update its Remuneration Code to take into account CRD III

The FSA has announced a consultation on plans to update its Remuneration Code in order to incorporate the proposed remuneration rules of the Capital Requirements Directive (CRD III) which were approved by the European Parliament earlier this month. 

Please click here for a copy of our recent briefing on the CRD III remuneration proposals.

The FSA proposals are intended to strengthen the Code in a number of ways and contain further detail on the implementation of CRD III at a national level, including:

• Bringing over 2,500 firms within the scope of the Code- the Code will, on its face, include all banks, building societies and Capital Adequacy Directive (CAD) investment firms, however the FSA has indicated that it is committed to applying proportionality in its approach to implementation and so the wider application of the rules is not certain. The Committee of European Banking Supervisors will also publish guidelines for consultation on proportionality in October 2010.
• Application to 'Code staff' - this would include senior managers and employees whose professional activities could have a material impact on risk (examples are set out in the consultation paper). The onus will be on firms to identify such staff in the first instance, subject to review by the FSA.
• Clarification on "large" bonuses- the FSA proposes that, in respect of the requirement to defer at least 40% of bonuses for a period of three years (for Code staff), this deferred element would increase to 60% for bonuses of more than £500,000.
• It is proposed that the Code will include voiding provisionswhich may render a contract void and/or require recovery of payments in the case of defined breaches of the Code.
• The FSA has confirmed a ban on guaranteed bonuses, save in exceptional circumstances in the first year of employment.

The FSA has indicated that "it doesn't intend the final rules to be super-equivalent" (ie, it does not intend to 'gold plate' CRD III when implementing it such that the UK regulations go further than those implemented in other member states).

Consultation on the proposals will close on 8 October 2010, with a policy statement due to be issued by the FSA in November 2010 in time for implementation on 1 January 2011.

We will circulate a more detailed briefing on the consultation and the issues raised shortly.