There will be significant changes to the way FCA investment firms manage the remuneration of staff for performance years from 1 January 2022. The changes introduced by the new prudential regime for investment firms (IFPR) will have an impact on all MiFID investment firms, but the extent of the changes depends on a firm’s classification.
All investment firms will be required to put in place remuneration policies and practices that apply to all staff. These will set minimum standards and ensure good governance.
In addition, “non-SNI firms” will also be required to identify “material risk takers” and decide on the appropriate ratio between variable and fixed remuneration, applicable to all staff.
For these companies, the new IFPR includes a requirement that variable pay be subject to malus and clawback and restrictions on the use of guaranteed bonuses, retention bonuses and severance pay.
The largest of these companies (“significant non-SNI companies”) will also be required to defer the variable compensation of significant risk takers, who may no longer be fully paid in cash. They will also be required to set up a remuneration committee.
Companies will be required to disclose certain key features of their compensation policies and practices, as well as the amounts of fixed and variable compensation awarded to all staff. Non-SNI companies will need to divide this between senior management, material risk takers and other staff.
These changes align with practices already in place in other regulated entities, such as banks. Our employment lawyers are experienced in working with our regulatory colleagues to create solutions for employee contracts and reward communications. The changes will be troubling for employee groups who are unfamiliar with the strict regulations applied to their rewards package. For some employees, the changes will have cash flow implications and employers should take the lead before concerns escalate.
Businesses will need to ensure they are contractually allowed to defer, delay or claw back payments where the new IFPR requires them to do so. This will require the employee’s written consent, which will not currently be in place in all cases.