The FCA has opened a consultation into proposed changes to the remuneration rules for firms who are dual-regulated; that is, those firms such as banks and building societies which are regulated by both the FCA and PRA.
The full Consultation Paper can be accessed here.
The introduction of the CRD V had lowered the proportionality threshold that had exempted some smaller, less-complex dual-regulated firms from the more onerous remuneration requirements. That lead to more firms having to apply rules on deferral and payments in instalments. At the same time, all dual-regulated firms, irrespective of their size and complexity, became subject to a bonus cap and rules on malus and clawback.
The FCA's proposals
The FCA considers that the SYSC 19D Remuneration Code may currently be overly burdensome for smaller and less complex banks and building societies. The proposals seek to remove this burden by:
- changing the proportionality thresholds so that firms with total assets averaging £4bn over three years are exempted from some of the remuneration rules (or £30bn where certain over criteria are also fulfilled);
- removing the current requirements for smaller, less complex firms to apply the rules relating to malus and clawback.
The proposals would provide increased flexibility for smaller, less complex banks and building societies to apply the remuneration framework in a way that is more proportionate to the risks these firms pose to consumers and the market. The hope is that the proposals would allow attract new entrants to the banking market, allow these firms to attract new staff, compete and grow in the market, enhance competition in UK markets and increase the attractiveness of the UK as a place to do business. The change would certainly be welcomed by those smaller firms who find the current rules overly complex and burdensome.
As part of the proposals, the FCA is also proposing minor changes to address current areas of divergence between the FCA Handbook and the PRA Rulebook, including relating to the identification of Remuneration Code Staff.
The proposed changes are consistent with those proposed by the Prudential Regulation Authority’s Consultation Paper on enhancing proportionality for small firms, which was published in February 2023.
Responses to the consultation need to be submitted by 9 June 2023, and can be submitted using the online form. The FCA will align the timing of publication with the PRA, and are targeting to publish the Policy Statement and final rules and guidance in Q4 2023.
For questions on the consultation and what this might mean for your firm, please contact James Green or your usual Burges Salmon contact.