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SYSC 19A.2 General requirement

Remuneration policies must promote effective risk management

SYSC 19A.2.1R

A firm must establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote sound and effective risk management.

[Note: 1article 74(1) of CRD]

1
SYSC 19A.2.2G
  1. (1)

    If a firm's remuneration policy is not aligned with effective risk management it is likely that employees will have incentives to act in ways that might undermine effective risk management.

  2. (2)

    The Remuneration Code covers all aspects of remuneration that could have a bearing on effective risk management including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements. In applying the Remuneration Code, a firm should have regard to applicable good practice on remuneration and corporate governance, such as guidelines on executive contracts and severance produced by the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF). In considering the risks arising from its remuneration policies, a firm will also need to take into account its statutory duties in relation to equal pay and non-discrimination.

  3. (3)

    As with other aspects of a firm's systems and controls, in accordance with SYSC 4.1.2 R remuneration policies, procedures and practices must be comprehensive and proportionate to the nature, scale and complexity of the common platform firm's activities. What a firm must do in order to comply with the Remuneration Code will therefore vary. For example, while the Remuneration Code refers to a firm's remuneration committee and risk management function, it may be appropriate for the governing body of a smaller firm to act as the remuneration committee, and for the firm not to have a separate risk management function.

  4. (4)

    The principles in the Remuneration Code are used by the appropriate regulator to assess the quality of a firm's remuneration policies and whether they encourage excessive risk-taking by a firm's employees.

  5. (5)

    The appropriate regulator may also ask remuneration committees to provide the appropriate regulator with evidence of how well the firm's remuneration policies meet the Remuneration Code's principles, together with plans for improvement where there is a shortfall. The appropriate regulator also expects relevant firms to use the principles in assessing their exposure to risks arising from their remuneration policies as part of the internal capital adequacy assessment process (ICAAP).

  6. (6)

    The Remuneration Code is principally concerned with the risks created by the way remuneration arrangements are structured, not with the absolute amount of remuneration, which is generally a matter for firms' remuneration committees.

SYSC 19A.2.3G
  1. (1)

    The specific remuneration requirements in this chapter may apply only in relation to certain categories of employee. But the appropriate regulator would expect firms, in complying with the Remuneration Code general requirement, to apply certain principles on a firm-wide basis.

  2. (2)

    In particular, the appropriate regulator considers that firms should apply the principle relating to guaranteed variable remuneration on a firm-wide basis (Remuneration Principle 12(c); SYSC 19A.3.40 R to SYSC 19A.3.43 G).

  3. (3)

    The appropriate regulator would also expect firms to apply at least the principles relating to risk management and risk tolerance (Remuneration Principle 1); supporting business strategy, objectives, values and long-term interests of the firm (Remuneration Principle 2); conflicts of interest (Remuneration Principle 3); governance (Remuneration Principle 4); risk adjustment (Remuneration Principle 8); pension policy (Remuneration Principle 9); personal investment strategies (Remuneration Principle 10); payments related to early termination (Remuneration Principle 12(e)) and deferral (Remuneration Principle 12(g)) on a firm-wide basis.

Record-keeping

SYSC 19A.2.4G

In line with the record-keeping requirements in SYSC 9, a firm should ensure that its remuneration policies, practices and procedures are clear and documented. Such policies, practices and procedures would include performance appraisal processes and decisions.

Interpretation of references to remuneration

SYSC 19A.2.5R
  1. (1)

    In this chapter references to remuneration include remuneration paid, provided or awarded by any person to the extent that it is paid, provided or awarded in connection with employment by a firm.

  2. (2)

    Paragraph (1) is without prejudice to the meaning of remuneration elsewhere in the Handbook.

SYSC 19A.2.6G

Remuneration includes, for example, payments made by a seconding organisation which is not subject to the Remuneration Code to a secondee in respect of their employment by a firm which is subject to the Remuneration Code.