On the 20th April 2011, immediately before the Easter break, the FSA published simultaneous guidance and consultation relating to the Remuneration Code (“the Code”) requirements for investment firms laid out in Chapter 19A of the FSA’s Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook. While this long anticipated publication will go a long way to assist understanding of the practical implications of the implementation of banking style rules on more than 2500 firms, we are not going to chocolate coat it.
As you may already know, as a result of an update to the Capital Requirements Directive, the Code was extended to a much larger group of investment firms from 1st January 2011 (click here for our most recent note on the Remuneration Code). The FSA’s pre-Easter missive provides clarification to earlier guidance on the matter with an invitation for firms to comment by 18th May 2011. In effect, this is guidance with an invitation for only strong objections.
Amongst the information of general applicability, we have honed in on the rules relating to lower tier limited licence firms, who have been helpfully invited to apply the rules in a way that is proportionate to their size, internal organisation and complexity. For such firms, the FSA have provided the following “proposed” guidance:
- Templates for Self-Assessment of Compliance with Remuneration Code (For firms in proportionality Tiers 3 and 4)
- Code Staff lists (For firms in proportionality Tiers 3 and 4)
- Guidance on Retention Periods (if relevant)
- Guidance on Variable Remuneration
- Frequently Asked Questions (FAQ) on the Remuneration Code.
The templates provide a list of things firms should be considering in order to prepare what the FSA are calling a Remuneration Policy Statement or “RPS”. They are presented as the type of questions that the FSA are likely to ask about the implementation of a firm’s policy. The message is that firms need to have considered these issues. This RPS itself will be the formal written output of a review of how the firm’s remuneration practices meet the applicable Code requirements and should go some way in meeting the FSA’s expectations.
The Code Staff list is to provide firms with a framework to record the assessment of individuals in the firm and the FAQ provides a number of detailed clarifications, including indicative answers to the following points:
- What steps should I take to ensure we are compliant?
- Which parts of the Code should be applied on a firm-wide basis and which parts only need to be applied to Code Staff?
- Is there a template we can use for our Code Staff list?
- Within asset management firms, do all fund managers have to be classified as Code Staff?
- My firm is a limited liability partnership (LLP) and my staff are partners (CF4). As CF4 is a significant influence function, does this mean that all of these staff have to be classified as Code Staff?
- My firm is in proportionality tier 3 / tier 4. Do I have to explain our reasons for not applying the Principle 12 rules on deferral and retained shares?
- We are a small firm with a handful of Code Staff and are concerned about the lack of anonymity in aggregate disclosures. Are there any caveats we can seek to apply?
While the templates and documents highlight and address a large number of the issues that have been under discussion, further consideration may be required to interpret the implications of this new consultation and guidance.
IMS has been closely following the developments and has been actively involved in providing input to industry wide discussions on the matter. If you wish to discuss this new guidance and consultation please contact Derek McGibney, Peter Moore or your usual IMS consultant.