SYSC 19D.2 General requirement

Remuneration policies must promote effective risk management

SYSC 19D.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: article 74(1) of CRD]

SYSC 19D.2.2G
  1. (1)

    The dual-regulated firms 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.

  2. (2)

    As with other aspects of a firm's systems and controls, in accordance with SYSC 4.1.2R (general organisational requirements) 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 dual-regulated firms Remuneration Code will therefore vary. For example, while the dual-regulated firms 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.

  3. (3)

    The FCA may also ask remuneration committees to provide it with evidence of how well the firm's remuneration policies meet the dual-regulated firms Remuneration Code's principles, together with plans for improvement where there is a shortfall. The FCA 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).

  4. (4)

    The FCA would also expect firms to apply, on a firm-wide basis, at least the following principles relating to:

    1. (a)

      risk management and risk tolerance (Remuneration Principle 1);

    2. (b)

      supporting business strategy, objectives, values and long-term interests of the firm (Remuneration Principle 2);

    3. (c)

      avoiding conflicts of interest (Remuneration Principle 3);

    4. (d)

      governance (Remuneration Principle 4);

    5. (e)

      risk adjustment (Remuneration Principle 8);

    6. (f)

      pension policy (Remuneration Principle 9);

    7. (g)

      personal investment strategies (Remuneration Principle 10);

    8. (h)

      payments related to early termination (Remuneration Principle 12(e)); and

    9. (i)

      deferral (Remuneration Principle 12(g)).

Record keeping

SYSC 19D.2.3R

In line with the record-keeping requirements in SYSC 9, a firm must ensure that its remuneration policies, practices and procedures, including performance appraisals processes and decisions, are clear and documented.

Interpretation of references to remuneration

SYSC 19D.2.4R
  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 19D.2.5G

For example, remuneration includes payments made by a seconding organisation which is not subject to the dual-regulated firms Remuneration Code to a secondee in respect of their employment by a firm which is subject to the dual-regulated firms Remuneration Code.