FCA publishes final IFPR remuneration disclosure rules

The FCA has now published its final rules on remuneration-related disclosures under the Investment Firms Prudential Regime (“MIFIDPRU”) that will apply to UK investment firms for performance years commencing on or after 1 January 2022. For most firms, with a calendar year performance period, the first remuneration disclosures under the new rules will need to be made on the date of publication of the firm’s annual results in 2023 (in accordance with MIFIDPRU 8.1.10). The FCA has confirmed that disclosures made in 2022 which relate to the 2021 performance year, or disclosures in relation to performance years which start in 2021 but end in 2022, will continue to be made under the current disclosure regimes, whether the Capital Requirements Regulation or BIPRU 11 (see Transitional Provisions 12 at pages 113 to 117 of FCA 2021/49). When such disclosures are made, the FCA continues to suggest that the most appropriate place for publication will be the firm’s website, although the proposed rule in this respect has been amended as the FCA accepts that it would be disproportionate to require a firm without a website to set one up simply to make disclosures.

The final disclosure rules under MIFIDPRU 8 are contained within FCA 2021/49 at page 94 onwards, with the main provisions relating to remuneration disclosures set out in MIFIDPRU 8.6, starting on page 99.  The final rules, together with the FCA’s response to its August Consultation Paper in PS21/17, provide additional clarity on the manner and timing of the required remuneration disclosures, the categorisation of carried interest as variable remuneration and, for non-SNI firms, the circumstances in which certain disclosures can be aggregated (or not made) where otherwise remuneration paid to one or two individuals could be identified.

Comment

As expected, the final remuneration disclosure rules under MIFIDPRU 8.6 are largely the same as the draft rules published by the FCA at the time of its August Consultation Paper. As described in our Guide to the MIFIDPRU Remuneration Code, all firms will be required to continue to make qualitative and quantitative public disclosures in relation to their remuneration practices and there are no substantive changes to the qualitative disclosures described therein. Whilst the FCA acknowledges that there is an element of subjectivity as to how much information firms will be required to disclose, it maintains that this “provides flexibility to ensure the disclosures are accessible, meaningful and reflect the firm’s arrangements.”

Given that to do so could cause data protection issues, the updated disclosure rules confirm that there will be an exemption from the need for non-SNI firms to disclose most items of quantitative remuneration data broken down into the categories of “senior management” and “other Material Risk Takers” (“MRTs”) where either or both of these categories would contain information on one or two individuals for that particular information item. Further, non-SNI firms that only identify one or two MRTs will be exempt from the need to disclose most items of quantitative remuneration data requirements altogether. The FCA continues to propose, however, that all non-SNI firms will still be required to disclose certain information, including the highest severance payment awarded to an MRT in a year, which could give rise to similar data protection concerns. Industry bodies are, therefore, continuing their dialogue with the FCA on this point given the potential for individuals to be identified in smaller non-SNI firms which typically only have one or two MRT leavers in a year.

The FCA was also requested to clarify how the MIFIDPRU rules, and in particular the remuneration disclosure requirements, apply to the remuneration of someone identified as an MRT as a result of being a non-executive board member of the UK firm, but who is employed by a parent entity in a third country located outside of the UK investment firm’s consolidation group. In these circumstances, the individual is likely to receive either no remuneration or only a fixed fee from the UK firm in relation to the supervisory role carried out for the UK investment firm, but may receive variable remuneration from the parent in relation to the individual’s employment with the parent. Further, the UK investment firm is likely to have little or no ability to control the variable remuneration paid by the parent entity to such an individual. It is therefore surprising that, on the face of the FCA’s response in PS21/17, the FCA seems to suggest that all of the MRT’s remuneration, irrespective of the source, should be subject to the provisions of the MIFIDPRU Remuneration Code. It may be, however, that the FCA is simply requesting that firms assess in more detail any such MRT’s remuneration to determine whether it is in fact linked to their role with the UK firm, rather than making an assumption that there is no linked variable remuneration. The FCA has indicated that where the variable remuneration can influence the individual’s behaviour and decision-making at the UK investment firm then it is appropriate for that variable remuneration, irrespective of the entity from which the remuneration is derived, to be subject to the relevant remuneration rules and to be included in relevant disclosures. The FCA is likely to be requested in due course to provide further guidance in this respect.

The IFPR regulatory framework is now largely complete but we will continue to keep you up to date with any further developments, in particular in relation to those points which industry bodies are continuing to discuss with the FCA. If you have any queries, please contact a member of the Remuneration and Incentives team.

HSF publications

Our previous publications on IFPR can be found below:

• IFPR: FCA publishes final Policy Statement 21/17 (3 December 2021)
• A Guide to FCA Policy Statements and Final Consultation on IFPR (1 September 2021)
• HSF Guide to IFPR Remuneration Rules (1 September 2021)
• Investment firms take note: FCA publishes second IFPR consultation (21 April 2021)
• HM Treasury consultation on IFPR implementation and Basel 3 standards (16 February 2021)
• FCA publishes first consultation paper on Investment Firm Prudential Regime (16 December 2020)
• First steps taken on new UK prudential regime for investment firms (25 June 2020)
• Impact of IFD/IFR on Remuneration Provisions for Investment Firms (29 January 2020)
• EU Investment Firms Directive and Regulation: Overview of New Prudential Regime for 2021 (30 January 2020)
• Q&A for Asset Managers (30 January 2020)