Reset to Today

To access the FCA Handbook Archive choose a date between 1 January 2001 and 31 December 2004.

Content Options:

Content Options

View Options:


You are viewing the version of the document as on 2023-03-30.

Timeline guidance

SYSC 19D.1 1Application and purpose

Who? What? Where?

SYSC 19D.1.1 R RP
  1. (1)

    The dual-regulated firms Remuneration Code applies to:

    1. (a)

      a building society;

    2. (b)

      a UK bank2;

    3. (c)

      a UK designated investment firm;

    4. (d)

      an overseas firm that would be a firm in (a), (b) or (c) if it had been a UK domestic firm, had carried on all of its business in the United Kingdom and had obtained whatever authorisations for doing so as are required under the Act.3

  2. (2)

    For a firm which falls under (1)(a), (1)(b) or (1)(c), the dual-regulated firms Remuneration Code applies2 in relation to:

    1. (a)

      its UK activities; and3

    2. (b)

      [deleted]3

    3. (c)

      a UK domestic firm's activities wherever they are carried on.

  3. (3)

    For a firm that falls under (1)(d), the dual-regulated firms Remuneration Code applies only in relation to activities carried on from an establishment in the United Kingdom.

  4. (4)

    Otherwise, the dual-regulated firms Remuneration Code applies to a firm within (1) in the same way as SYSC 4.1.1R (General requirements).2

SYSC 19D.1.1A G RP

2 SYSC 19D.1.1R(2) is applied to the extent of the FCA’s powers and regulatory responsibilities.

SYSC 19D.1.2 R RP

Under Part 2 of SYSC 1 Annex 1 in relation to SYSC 4.1.1R (General requirements), and subject2 to the provisions on group risk systems and controls requirements in SYSC 12 (Group risk systems and controls requirements), the dual-regulated firms Remuneration Code:

  1. (1)

    applies in relation to regulated activities, activities that constitute dealing in investments as principal (disregarding the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc)), ancillary activities and (in relation to MiFID business) ancillary services;

  2. (2)

    applies in relation to the carrying on of unregulated activities in a prudential context; and

  3. (3)

    takes into account activities of other group members.

When?

SYSC 19D.1.3 R RP
  1. (1)

    Except as set out in (2) and (3), a firm must apply the remuneration requirements in SYSC 19D.3 (Remuneration principles) in relation to:

    1. (a)

      remuneration awarded, whether pursuant to a contract or otherwise, on or after 1 January 2011;

    2. (b)

      remuneration due on the basis of contracts concluded before 1 January 2011 which is awarded or paid on or after 1 January 2011; and

    3. (c)

      remuneration awarded, but not yet paid, before 1 January 2011, for services provided in 2010.

      [Note: article 3(2) of Directive 2010/76/EU]

  2. (2)

    A firm must apply the remuneration requirements in SYSC 19D.3.48R(3) (1:1 ratio of variable to fixed components) and SYSC 19D.3.49R (1:2 ratio of fixed to variable components) in relation to remuneration awarded for services provided or performance from the year 2014 onwards, whether due on the basis of contracts concluded before, on or after 31 December 2013.

    [Note: article 162(3) of CRD]

  3. (3)

    A firm must apply the remuneration requirements in SYSC 19D.3.59R(1)(b), SYSC 19D.3.61R(2), SYSC 19D.3.61R(3), SYSC 19D.3.61R(4), SYSC 19D.3.61R(5), SYSC 19D.3.64R and SYSC 19D.3.67R(1)(c) in relation to variable remuneration awarded in relation to the performance year starting on or after 1 January 2016.

SYSC 19D.1.4 G RP

Subject to SYSC 19D.1.5R, SYSC 19D.1.3R does not require a firm to breach requirements of applicable contract or employment law.

[Note: recital 14 of Directive 2010/76/EU]

Conflict with other obligations

SYSC 19D.1.5 R RP
  1. (1)

    Where a firm is unable to comply with the dual-regulated firms Remuneration Code because to do so would breach a provision of a prior contract (including a provision in a contract with a dual-regulated firms Remuneration Code staff member), it must take reasonable steps to amend or to terminate the provision in question in a way which enables it to comply with the dual-regulated firms Remuneration Code at the earliest opportunity.

  2. (2)

    Until the provision in (1) ceases to prevent the firm from complying with the dual-regulated firms Remuneration Code, it must adopt specific and effective arrangements, processes and mechanisms to manage the risks raised by the provision.

Purpose

SYSC 19D.1.6 G RP
  1. (1)

    The aim of the dual-regulated firms Remuneration Code is to ensure that firms have risk-focused remuneration policies, which are consistent with and promote effective risk management and do not expose them to excessive risk. It expands upon the general organisational requirements in SYSC 4.

  2. (2)

    The dual-regulated firms Remuneration Code implements the main provisions of the CRD which relate to remuneration. In applying the rules in the dual-regulated firms Remuneration Code, firms should comply with the EBA “Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013”, 21 December 2015 (EBA/GL/2015/22).3

    2

Notifications to the FCA

SYSC 19D.1.7 G RP
  1. (1)

    In addition to the notification requirements in the dual-regulated firms Remuneration Code2, general circumstances in which the FCA expects to be notified by firms of matters relating to their compliance with requirements under the regulatory system are set out in SUP 15.3 (General notification requirements).

  2. (2)

    For remuneration matters in particular, those circumstances should take into account unregulated activities, as well as regulated activities and the activities of other members of a group, and would include each of the following:

    1. (a)

      significant breaches of the dual-regulated firms Remuneration Code, including any breach of a rule to which the provisions on voiding and recovery in SYSC 19D Annex 1 apply;

    2. (b)

      any proposed remuneration policies, procedures or practices which could:

      1. (i)

        have a significant adverse impact on the firm’s reputation; or

      2. (ii)

        affect the firm’s ability to continue to provide adequate services to its customers and which could result in serious detriment to a customer of the firm; or

      3. (iii)

        result in serious financial consequences to the financial system or to other firms;

    3. (c)

      any proposed changes to remuneration policies, practices or procedures which could have a significant impact on the firm’s risk profile or resources;

    4. (d)

      fraud, errors and other irregularities described in SUP 15.3.17R (notification of fraud, errors and other irregularities) which may suggest weaknesses in, or be motivated by, the firm’sremuneration policies, procedures or practices.

  3. (3)

    Notifications should be made immediately as the firm becomes aware or has information which reasonably suggests that those circumstances have occurred, may have occurred or may occur in the foreseeable future.

Individual guidance

SYSC 19D.1.8 G RP

The FCA's policy on individual guidance is set out in SUP 9. Firms should particularly note the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5G). For example, where a firm is seeking guidance on a proposed remuneration structure, the FCA will expect the firm to provide a detailed analysis of how the structure complies with the dual-regulated firms Remuneration Code, including the general requirement for remuneration policies, procedures and practices to be consistent with, and promote, sound and effective risk management.

Interpretation

SYSC 19D.1.9 G RP

Except as provided in the Glossary, any expression used in, or for the purpose of, this chapter which is defined or used in UK CRR3 has the meaning given by, or used in, those Regulations.

SYSC 19D.2 General requirement

Remuneration policies must promote effective risk management

SYSC 19D.2.1 R RP

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.2.2 G RP
  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. 2

  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)).

Gender neutral policies and practices

SYSC 19D.2.2A R

1A firm must ensure that its remuneration policy is a gender neutral remuneration policy and the practices referred to in SYSC 19D.2.1R are gender neutral.

[Note: articles 74(1) and 92(2)(aa) of CRD V]

SYSC 19D.2.2B G

1 Firms are reminded that the Equality Act 2010 prohibits discrimination on the basis of an individual’s protected characteristics both before and after employment is offered. The Act applies to pay and all other contractual terms, including variable remuneration. A firm should ensure that its remuneration policy complies with the Equality Act 2010.

SYSC 19D.2.2C G

1 Firms should ensure that when they assess individual performance, the assessment process and any variable remuneration awarded in accordance with SYSC 19D.3.39R does not discriminate on the basis of the protected characteristics of an individual.

Record keeping

SYSC 19D.2.3 R RP

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.2.4 R RP
  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.2.5 G RP

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.

SYSC 19D.3 Remuneration principles

Application: groups

SYSC 19D.3.1 R RP
  1. (1)

    A firm must apply the requirements of this section at group, parent undertaking and subsidiary undertaking levels, including those subsidiaries established in a country or territory which is outside the United Kingdom3.

  2. (2)

    Paragraph (1) does not limit SYSC 12.1.13R(2)(dA) (which relates to the application of the dual-regulated firms Remuneration Code within UK consolidation groups4).

    3

2

SYSC 19D.3.2 G RP

SYSC 12.1.13R(2)(dA) requires the firm to ensure that the risk management processes and internal control mechanisms at the level of any UK consolidation group or non-UK sub-group3 of which a firm is a member, comply with the obligations in this section on a consolidated basis (or sub-consolidated basis). In the FCA’s view, the application of this section at group, parent undertaking and subsidiary undertaking levels in SYSC 19D.3.1R(1) is in line with 3 the application of systems and controls requirements to groups (as in SYSC 12.1.13R).1

SYSC 19D.3.2A G

2 Firms should refer to SYSC 12 (Group risk systems and controls requirements), which sets out how the systems and control requirements imposed by SYSC (Senior Management Arrangements, Systems and Controls) apply where a firm is part of a group.

SYSC 19D.3.2B R
  1. (1)

    2For a firm within the scope of SYSC 19D.1.1R(1)(a), (1)(b) or (1)(c), the rules in (3) do not apply if:

    1. (a)

      the firm is not a large institution; and

    2. (b)

      the firm’s average total assets, calculated on an individual basis in accordance with the UK legislation that implemented3CRD V and the UK CRR3, are less than or equal to £4 billion3.

  2. (2)

    For a firm within the scope of SYSC 19D.1.1R(1)(d), the rules in (3) do not apply if the average total assets that relate to the activities of the UK branch are less than or equal to £43 billion.

  3. (3)

    The rules referred to in (1) and (2) are:

    1. (a)

      SYSC 19D.3.31R(2) and (3) (pension policy);

    2. (b)

      SYSC 19D.3.56R (retained shares or other instruments); and

    3. (c)

      SYSC 19D.3.59R (deferral).

    [Note: article 94(3)(a) of CRD V]

SYSC 19D.3.2C R
  1. (1)

    2The value in SYSC 19D.3.2BR(1)(b) or (2) is increased to £13 billion3 if:

    1. (a)

      the firm meets the criteria set out in points (145)(c), (d) and (e) of Article 4(1) of the UK CRR3; and

    2. (b)

      the increase is appropriate taking into account the firm’s nature, the scope and complexity of its activities, its internal organisation and (if applicable) the characteristics of the group to which it belongs.

  2. (2)

    For a firm within the scope of SYSC 19D.1.1R(1)(d), the criteria referred to in (1)(a) must be assessed on the basis of the activities of the UK branch.

[Note: article 94(4) of CRD V]

Application: categories of staff and proportionality

SYSC 19D.3.3 R RP
  1. (1)

    This section applies in relation to dual-regulated firms Remuneration Code staff, except as set out in (3).

  2. (2)

    When establishing and applying the total remuneration policies for dual-regulated firms Remuneration Code staff, a firm must comply with this section in a way2 that is appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities (the dual-regulated firms remuneration principles proportionality rule).

  3. (3)

    Paragraphs (1) and (2) do not apply to the requirement for significant firms to have a remuneration committee (SYSC 19D.3.12R).

[Note: article 92(2) of CRD]

[Note: In addition to the guidance in this section about the dual-regulated firms remuneration principles proportionality rule, the FCA provides1 guidance on the division of firms into categories for the purpose of providing a framework for the operation of the dual-regulated firms remuneration principles proportionality rule. This guidance is available on the FCA website at https://www.fca.org.uk/firms/being-regulated/remuneration-codes.]

SYSC 19D.3.4 R RP
  1. (1)

    Dual-regulated firms Remuneration Code staff comprises:

    1. (a)

      an employee of a dual-regulated firm whose professional activities have a material impact on the firm’s risk profile, including any employee who is deemed to have a material impact on the firm’s risk profile in accordance with the Material Risk Takers Regulation 20202; or

    2. (b)

      subject to (2) and (3), an employee of an overseas firm in SYSC 19D.1.1R(1)(d) (i.e., an overseas firm that would have been a UK bank1, building society or UK designated investment firm if it had been a UK domestic firm) whose professional activities have a material impact on the firm’s risk profile, including any employee who would meet any of the criteria set out in articles 6 or 7(1) of the Material Risk Takers Regulation 2020 if it had applied to them2.

  2. (1A)

    For the purposes of paragraph (1), dual-regulated firms Remuneration Code staff must, at least, include:2

    1. (a)

      all members of the firm’smanagement body and senior management; 2

    2. (b)

      staff members with managerial responsibility over the firm’s control functions or material business units; 2

    3. (c)

      staff members entitled to significant remuneration in the preceding financial year, provided that the following conditions are met: 2

      1. (i)

        the staff member’s remuneration is equal to or higher than:2

        1. (A)

          £440,0003; and2

        2. (B)

          the average remuneration awarded to the members of the firm’s management body and senior management referred to in point (a); 2

      2. (ii)

        the staff member performs the professional activity within a material business unit and the activity is of a kind that has a significant impact on the relevant business unit’s risk profile.2

    [Note: article 92(3) of CRD V]2

  3. (2)

    An overseas firm in SYSC 19D1.1.R(1)(d) (i.e., an overseas firm that would have been a dual-regulated firm if it had been a UK domestic firm) may deem an employee not to be a dual-regulated firms Remuneration Code staff where:

    1. (a)

      the employee:

      1. (i)

        would meet the criteria in article 7(1) of the Material Risk Takers Regulation 20202;

      2. (ii)

        would not meet any of the criteria in article 6 of the Material Risk Takers Regulation 20202; and

      3. (iii)

        was awarded total remuneration of less than £658,0003 in the previous year;

    2. and

    3. (b)

      the overseas firm determines that the professional activities of the employee do not have a material impact on its risk profile on the grounds described in article 7(2) of the Material Risk Takers Regulation 2020; and2

  4. (c)

    the overseas firm has obtained the prior written approval of the PRA, in accordance with Chapter 3 of the Remuneration Part of the PRA Rulebook.2

  5. (3)

    [deleted]2

[Note: article 92(2) of CRD V and articles 6 and 7 of the Material Risk Takers Regulation 2020.2]

SYSC 19D.3.5 G RP

Where an overseas firm in SYSC 19D1.1.R(1)(d) (i.e., an overseas firm that would have been a dual-regulated firm if it had been a UK domestic firm) wishes to deem an employee who earns more than £658,0003 not to be dual-regulated firms Remuneration Code staff, the overseas firm may apply for a waiver of the requirement in SYSC 19D.3.4R in respect of that employee.

SYSC 19D.3.6 R RP

A firm must:

  1. (1)

    maintain a record of its dual-regulated firms Remuneration Code staff under the general record-keeping requirements (SYSC 9); and

  2. (2)

    take reasonable steps to ensure that its dual-regulated firms Remuneration Code staff understand the implications of their status as such, including the potential for remuneration which does not comply with certain requirements of the dual-regulated firms Remuneration Code to be rendered void and recoverable by the firm.

Remuneration Principle 1: Risk management and risk tolerance

SYSC 19D.3.7 R RP

A firm must ensure that its remuneration policy is consistent with, and promotes, sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the firm.

[Note: article 92(2)(a) of CRD]

Remuneration Principle 2: Supporting business strategy, objectives, values and long-term interests of the firm

SYSC 19D.3.8 R RP

A firm must ensure that its remuneration policy is in line with the business strategy, objectives, values and long-term interests of the firm.

[Note: article 92(2)(b) of CRD]

Remuneration Principle 3: Avoiding conflicts of interest

SYSC 19D.3.9 R RP

A firm must ensure that its remuneration policy includes measures to avoid conflicts of interest.

[Note: article 92(2)(b) of CRD]

Remuneration Principle 4: Governance

SYSC 19D.3.10 R RP

A firm must ensure that its management body in its supervisory function adopts and periodically reviews the general principles of the remuneration policy and is responsible for overseeing its implementation.

[Note: article 92(2)(c) of CRD and Standard 1 of the FSB Compensation Standards]

SYSC 19D.3.11 R RP

A firm must ensure that the implementation of the remuneration policy is, at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the management body in its supervisory function.

[Note: article 92(2)(d) of CRD and Standard 1 of the FSB Compensation Standards]

SYSC 19D.3.12 R RP
  1. (1)

    A significant firm2 must establish a remuneration committee .

  2. (2)

    A firm in (1) must ensure that:

    1. (a)

      the remuneration committee is constituted in a way that enables it to exercise competent and independent judgement on remuneration policies and practices and the incentives created for managing risk, capital and liquidity;

    2. (b)

      the chairman and the members of the remuneration committee must be members of the management body who do not perform any executive function in the firm;

    3. (c)

      the remuneration committee is responsible for the preparation of decisions regarding remuneration, including those which have implications for the risk and risk management of the firm and which are to be taken by the management body; and

    4. (d)

      when preparing those decisions, the remuneration committee must take into account the long-term interests of shareholders, investors and other stakeholders in the firm and the public interest.

[Note: article 95 of CRD and Standard 1 of the FSB Compensation Standards]

SYSC 19D.3.13 R RP

A firm that maintains a website must explain on the website how it complies with the dual-regulated firms Remuneration Code.

[Note: article 96 of the CRD]

SYSC 19D.3.14 G RP
  1. (1)

    A firm should be able to demonstrate that its decisions are consistent with an assessment of its financial condition and future prospects. In particular, practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain should be evaluated carefully and the governing body or remuneration committee (or both) should work closely with the firm's risk function in evaluating the incentives created by its remuneration system.

  2. (2)

    The governing body and any remuneration committee are responsible for ensuring that the firm's remuneration policy complies with the dual-regulated firms Remuneration Code and, where relevant, should take into account relevant guidance, such as that issued by the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO).

  3. (3)

    Guidance on what the supervisory function might involve is set out in SYSC 4.3.3G (responsibility of senior personnel, in particular, the supervisory function).

Remuneration Principle 5: Control functions

SYSC 19D.3.15 R RP

A firm must ensure that employees engaged in control functions:

  1. (1)

    are independent from the business units they oversee;

  2. (2)

    have appropriate authority; and

  3. (3)

    are remunerated:

    1. (a)

      adequately to attract qualified and experienced employees; and

    2. (b)

      in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.

[Note: article 92(2)(e) of CRD and Standard 2 of the FSB Compensation Standards]

SYSC 19D.3.16 E RP
  1. (1)

    A firm's risk management and compliance functions should have appropriate input into setting the remuneration policy for other business areas. The procedures for setting remuneration should allow risk and compliance functions to have significant input into the setting of individual remuneration awards where those functions have concerns about the behaviour of the individuals concerned or the riskiness of the business undertaken.

  2. (2)

    Contravention of (1) may be relied on as tending to establish contravention of the rule on employees engaged in control functions having appropriate authority (SYSC 19D.3.15R(2)).

SYSC 19D.3.17 R RP

A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the remuneration committee referred to in SYSC 19D.3.12R or, if such a committee has not been established, by the governing body in its supervisory function.

[Note: article 92(2)(f) of CRD]

SYSC 19D.3.18 G RP
  1. (1)

    This Remuneration Principle is designed to manage the conflicts of interest which might arise if other business areas had undue influence over the remuneration of employees within control functions. Conflicts of interest can easily arise when employees are involved in the determination of remuneration for their own business area. Where these could arise, they need to be managed by having in place independent roles for control functions (including, notably, risk management and compliance) and human resources. It is good practice to seek input from a firm's human resources function when setting remuneration for other business areas.

  2. (2)

    [deleted]1

  3. (3)

    [deleted]1

Remuneration Principle 6: Remuneration and capital

SYSC 19D.3.19 R RP

A firm must ensure that total variable remuneration does not limit the firm's ability to strengthen its capital base.

[Note: article 94(1)(c) of the CRD and Standard 3 of the FSB Compensation Standards]

SYSC 19D.3.20 G

[deleted]1

Remuneration Principle 7: Exceptional government intervention

SYSC 19D.3.21 R RP

A firm that benefits from exceptional government intervention must ensure that:

  1. (1)

    variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;

  2. (2)

    it restructures remuneration in a manner aligned with sound risk management and long-term growth, including (when appropriate) establishing limits to the remuneration of members of its management body; and

  3. (2)

    no variable or discretionary remuneration of any kind is paid to members of its management body unless this is justified.

[Note: article 93 of the CRD and Standard 10 of the FSB Compensation Standards]

SYSC 19D.3.22 G RP

The FCA would normally expect it to be appropriate for the ban on paying variable remuneration to members of the management body of a firm that benefits from exceptional government intervention to apply only to members of the management body who were in office at the time that the intervention was required.

Remuneration Principle 8: Profit-based measurement and risk adjustment

SYSC 19D.3.23 R RP
  1. (1)

    A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components:

    1. (a)

      includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and

    2. (b)

      takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings.

  2. (2)

    A firm must ensure that the allocation of variable remuneration components within the firm also takes into account all types of current and future risks.

[Note: article 94(1)(j), (k) of the CRD and Standard 4 of the FSB Compensation Standards]

SYSC 19D.3.24 G RP
  1. (1)

    This Remuneration Principle stresses the importance of risk adjustment in measuring performance, and the importance within that process of applying judgment and common sense. The FCA expects that a firm will apply qualitative judgements and common sense in the final decision about the performance-related components of variable remuneration pools.

  2. (2)

    [deleted]1

  3. (3)

    We consider good practice in this area to be represented by those firms who provide a quantitative reference or starting point that explicitly includes risk-adjusted metrics, before the application of more discretionary factors. Common measures include those based on economic profit or economic capital. Whichever technique is chosen, the full range of future risks should be covered, including non-financial risks such as reputation, conduct, client outcomes, values and strategy1.

  4. (4)

    The FCA expects a firm to be able to provide it with details of all adjustments that the firm has made whether through application of formulae or the exercise of discretion. This will enable the FCA to consider whether1 the firm’s risk adjustment framework is sufficiently robust. Where discretion has been applied, the firm should be able to provide a clear explanation for, and quantification of such adjustments.

  5. (5)

    A firm should ask the risk management function to validate and assess risk-adjustment techniques, and to attend a meeting of the governing body or remuneration committee for this purpose.

SYSC 19D.3.25 R RP

A firm must have a clear and verifiable mechanism for measuring performance, with risk adjustment applied thereafter in a clear and transparent manner.

SYSC 19D.3.26 G RP

A firm may apply discretionary factors to the extent that is appropriate and consistent with the overall aims of the risk adjustment exercise. Where such further adjustments have been made, firms should provide clear quantification and explanation to ensure their risk adjustment frameworks are sufficiently transparent.

SYSC 19D.3.27 R RP

A firm must base assessments of financial performance used to calculate variable remuneration components or pools of variable remuneration components principally on profits.

SYSC 19D.3.28 G RP
  1. (1)

    Performance measures based primarily on revenues or turnover are unlikely to pay sufficient regard to the quality of business undertaken or services provided. Profits are a better measure provided they are adjusted for risk, including future risks not adequately captured by accounting profits.

  2. (2)

    [deleted]1

SYSC 19D.3.29 R RP
  1. (1)

    A firm’s risk-adjustment approach must reflect both ex-ante adjustment (which adjusts remuneration for intrinsic risks that are inherent in its business activities) and ex-post adjustment (which adjusts remuneration for crystallisation of specific risks events).

  2. (2)

    A firm must ensure that its total variable remuneration is generally considerably contracted where subdued or negative financial performance of the firm occurs, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements.

[Note: article 94(1)(n) of CRD and Standard 5 of the FSB Compensation Standards]

SYSC 19D.3.30 G

[deleted]1

Remuneration Principle 9: Pension policy

SYSC 19D.3.31 R RP

A firm must ensure that:

  1. (1)

    its pension policy is in line with its business strategy, objectives, values and long-term interests;

  2. (2)

    when an employee leaves the firm before retirement, any discretionary pension benefits are held by the firm for a period of five years in the form of instruments referred to in SYSC 19D.3.56R(1); and

  3. (3)

    when an employee reaches retirement, discretionary pension benefits are paid to the employee in the form of instruments referred to in SYSC 19D.3.56R(1) and subject to a five-year retention period.

[Note: article 94(1)(o) of the CRD]

Remuneration Principle 10: Personal investment strategies

SYSC 19D.3.32 R RP
  1. (1)

    A firm must ensure that its employees undertake not to use personal hedging strategies to undermine the risk alignment effects embedded in their remuneration arrangements.

  2. (2)

    A firm must ensure that its employees do not use remuneration- or liability-related contracts of insurance to undermine the risk alignment effects embedded in their remuneration arrangements.

  3. (3)

    A firm must maintain effective arrangements designed to ensure that employees comply with their undertaking.

[Note: article 94(1)(p) of the CRD and Standard 14 of the FSB Compensation Standards]

SYSC 19D.3.33 G RP

In the FCA’s view, circumstances in which a person will be using a personal hedging strategy include (and are not limited to) entering into an arrangement with a third party under which the third party will make payments, directly or indirectly, to that person that are linked to or commensurate with the amounts by which the person's remuneration is subject to reductions.

Remuneration Principle 11: Non-compliance with the dual-regulated firms Remuneration Code

SYSC 19D.3.34 R RP

A firm must ensure that variable remuneration is not paid through vehicles or methods that facilitate non-compliance with obligations arising from the Dual-regulated Remuneration Code4, the UK CRR3 or the UK legislation that implemented the3CRD.

[Note: article 94(1)(q) of the CRD]

Remuneration Principle 12: Remuneration structures - introduction

SYSC 19D.3.35 R
  1. (1)

    2The rules in (2) do not apply to a firm in relation to an individual (X), where both the following conditions are satisfied:

    1. (a)

      Condition 1 is that X’s annual variable remuneration is no more than one third of X’s total annual remuneration; and

    2. (b)

      Condition 2 is that X’s total annual variable remuneration is no more than £44,0003.

  2. (2)

    The rules referred to in (1) are those relating to:

    1. (a)

      pension policy (SYSC 19D.3.31R(2) and (3));

    2. (b)

      retained shares or other instruments (SYSC 19D.3.56R);

    3. (c)

      deferral (SYSC 19D.3.59R); and

    4. (d)

      [deleted]

    [Note: article 94(3)(b) of CRD V]

Remuneration Principle 12(a): Remuneration structures - general requirement

SYSC 19D.3.36 R RP

A firm must ensure that the structure of an employee's remuneration is consistent with, and promotes, effective risk management.

SYSC 19D.3.37 R RP

A firm must ensure that the remuneration policy makes a clear distinction between criteria for setting:

  1. (1)

    basic fixed remuneration that primarily reflects an employee's professional experience and organisational responsibility, as set out in the employee's job description and terms of employment; and

  2. (2)

    variable remuneration that reflects performance in excess of that required to fulfil the employee's job description and terms of employment and that is subject to performance adjustment in accordance with the dual-regulated firms Remuneration Code.

[Note: article 92(2)(g) of the CRD]

SYSC 19D.3.38 R RP

A firm must not award variable remuneration to a non-executive director acting as such.

Remuneration Principle 12(b): Remuneration structures - assessment of performance

SYSC 19D.3.39 R RP
  1. (1)

    A firm must ensure that where remuneration is performance-related:

    1. (a)

      the total amount of remuneration is based on a combination of the assessment of the performance of:

      1. (i)

        the individual;

      2. (ii)

        the business unit concerned; and

      3. (iii)

        the overall results of the firm; and

    2. (b)

      when assessing individual performance, financial as well as non-financial criteria are taken into account.

[Note: article 94(1)(a) of the CRD and Standard 6 of the FSB Compensation Standards]

SYSC 19D.3.40 G RP
  1. (1)

    The non-financial criteria in SYSC 19D.3.39R(1)(b) should include: 1

    1. (a)

      the extent of the employee’s adherence to effective risk management, and compliance with the regulatory system and with relevant overseas regulatory requirements; and1

    2. (b)

      metrics relating to conduct, which should comprise a substantial portion of the non-financial criteria. 1

  2. (2)

    Aligning variable awards to sustainable financial performance requires firms to make appropriate ex-ante adjustments to take account of the potential for future unexpected losses. Performance measures commonly used (such as earnings per share (EPS), total shareholder return (TSR) and return on equity (RoE)) are not suitably adjusted for longer-term risk factors and have a tendency to incentive highly leveraged activities.1

SYSC 19D.3.41 G RP

Poor performance1, such as poor risk management or other behaviours contrary to firm values, can pose significant risks for a firm and non-financial metrics1 should override metrics of financial performance where appropriate1.

SYSC 19D.3.41A G RP

1A firm should note that the requirement in SYSC 19D.3.39R(1)(b) for financial and non-financial criteria to be taken into account applies wherever remuneration is performance-related including within any assessment of future performance.

SYSC 19D.3.42 R RP

A firm must clearly explain the performance assessment process in SYSC 19D.3.39R to relevant employees.

SYSC 19D.3.43 R RP

A firm must ensure that the assessment of performance is set in a multi-year framework in order to ensure that:

  1. (1)

    the assessment process is based on longer-term performance; and

  2. (2)

    the actual payment of performance-based components of remuneration is spread over a period which takes account of the underlying business cycle of the firm and its business risks.

[Note: article 94(1)(b) of CRD]

Remuneration Principle 12(c): Remuneration structures - guaranteed variable remuneration, buy-outs and retention awards

SYSC 19D.3.44 R RP
  1. (1)

    A firm must ensure that guaranteed variable remuneration is not part of prospective remuneration plans.

  2. (2)

    A firm must not award, pay or provide guaranteed variable remuneration unless:

    1. (a)

      it is exceptional;

    2. (b)

      it occurs in the context of hiring new dual-regulated firms Remuneration Code staff;

    3. (c)

      the firm has a sound and strong capital base; and

    4. (d)

      it is limited to the first year of service.

[Note: article 94(1)(d) and (e) of the CRD and Standard 11 of the FSB Compensation Standards]

SYSC 19D.3.45 R RP

A firm must ensure that remuneration packages relating to compensation for, or buy out from, an employee's contracts in previous employment align with its long-term interests including appropriate retention, deferral and performance and clawback arrangements.

[Note: article 94(1)(i) of CRD]

SYSC 19D.3.46 G RP
  1. (1)

    Guaranteed variable remuneration should be subject to the same requirements applicable to variable remuneration awarded by the firm including deferral, malus and clawback.

  2. (2)

    The FCA expects that guaranteed variable awards and retention awards should not be common practice for dual-regulated firms Remuneration Code staff and should be limited to rare, infrequent occurrences. The FCA expects a firm to provide prior notification to the FCA of any proposed retention1 awards.

SYSC 19D.3.47 G RP

Retention awards should form part of variable remuneration for the purpose of SYSC 19D.3.48R.

Remuneration Principle 12(d): Remuneration structures - ratios between fixed and variable components of total remuneration

SYSC 19D.3.48 R RP

A firm must set an appropriate ratio between the fixed and variable components of total remuneration and ensure that:

  1. (1)

    fixed and variable components of total remuneration are appropriately balanced;

  2. (2)

    the level of the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component; and

  3. (3)

    subject to SYSC 19D.3.49R, the level of the variable component of total remuneration must not exceed 100% of the fixed component of total remuneration for each dual-regulated firms Remuneration Code staff.

[Note: article 94(1)(f) and 94(1)(g)(i) of the CRD]

SYSC 19D.3.49 R RP

A firm may set a higher maximum level of the ratio between the fixed and variable components of total remuneration provided:

  1. (1)

    the overall level of the variable component does not exceed 200% of the fixed component of the total remuneration for each dual-regulated firms Remuneration Code staff; and

  2. (2)

    is approved by the shareholders or owners or members of the firm in accordance with SYSC 19D.3.50R.

[Note: article 94(1)(g)(ii) of CRD]

SYSC 19D.3.50 R RP

A firm must ensure that any approval by its shareholders or owners or members, for the purposes of SYSC 19D.3.49R, is carried out in accordance with the following procedure:

  1. (1)

    the firm must give reasonable notice to all its shareholders or owners or members of its intention to seek approval of the proposed higher ratio;

  2. (2)

    the firm must make a detailed recommendation to all its shareholders or owners or members that includes:

    1. (a)

      the reasons for, and the scope of, the approval sought;

    2. (b)

      the number of staff affected and their functions; and

    3. (c)

      the expected impact on the requirement to maintain a sound capital base;

  3. (3)

    the firm must:

    1. (a)

      without delay, inform the FCA of the recommendation to its shareholders or owners or members, including the proposed higher ratio and the reasons therefor; and

    2. (b)

      demonstrate to the FCA that the proposed higher ratio does not conflict with its obligations under the UK legislation that implemented the 3CRD and the UK CRR3, having particular regard to the firm’s own funds4 obligations;

  4. (4)

    the firm must ensure that employees who have an interest in the proposed higher ratio are not allowed to exercise, directly or indirectly, any voting rights they may have as shareholders or owners or members of the firm in respect of the approval sought; and

  5. (5)

    the higher ratio is approved by a majority of:

    1. (a)

      at least 66% of the shares or equivalent ownership rights represented, if at least 50% of the shares or equivalent ownership rights in the firm are represented; or

    2. (b)

      at least 75% of the shares or equivalent ownership rights represented, if less than 50% of the shares or equivalent ownership rights in the firm are represented.

[Note: article 94(1)(g)(ii) of the CRD]

SYSC 19D.3.51 R RP

A firm must notify the FCA without delay of the decisions taken by its shareholders or members or owners including any approved higher maximum ratio.

[Note: article 94(1)(g)(ii) of the CRD]

SYSC 19D.3.52 R RP

A firm may apply a discount rate to a maximum of 25% of an employee's total variable remuneration provided it is paid in instruments that are deferred for a period of not less than five years.

[Note: article 94(1)(g)(iii) of the CRD]

[Note: on 27 March 2014, the EBA published “Guidelines on the applicable notional discount rate for variable remuneration”, 27 March 2014 (EBA/GL/2014/01).]3

SYSC 19D.3.53 R RP

[deleted]3

Remuneration Principle 12(e): Remuneration structures - payments related to early termination

SYSC 19D.3.54 R RP

A firm must ensure that payments relating to the early termination of a contract reflect performance achieved over time and are designed in a way that does not reward failure or misconduct.

[Note: article 94(1)(h) of the CRD and Standard 12 of the FSB Compensation Standards]

SYSC 19D.3.55 G

[deleted]1

Remuneration Principle 12(f): Remuneration structures - retained shares or other instruments

SYSC 19D.3.56 R RP
  1. (1)

    A firm must ensure that a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of:

    1. (a)

      subject to the legal structure of the firm concerned: shares or equivalent ownership interests; or share-linked instruments or equivalent non-cash instruments2; and

    2. (b)

      where possible, other instruments that in each case adequately reflect the credit quality of the firm as a going concern and are appropriate for use as variable remuneration, such as:

      1. (i)

        those which are eligible as additional tier 1 instruments or tier 2 instruments; or

      2. (ii)

        those that can be fully converted to common equity tier 1 instruments or written down;

      (where the expressions in italics are defined, with the conditions for eligibility, in the Definition of the Capital part of the PRA Rulebook).

  2. (2)

    The instruments in (1) must be subject to an appropriate retention policy designed to align incentives with the longer-term interests of the firm.

  3. (3)

    This rule applies to both the portion of the variable remuneration component deferred in accordance with SYSC 19D.3.59R and the portion not deferred.

[Note: article 94(1)(l) of the CRD and Standard 8 of the FSB Compensation Standards]

SYSC 19D.3.57 G

[deleted]1

SYSC 19D.3.58 G

[deleted]1

Remuneration Principle 12(g): Remuneration structures - deferral

SYSC 19D.3.59 R RP
  1. (1)

    In relation to higher paid material risk takers a2 firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period which is not less than:

    1. (a)

      for dual-regulated firms Remuneration Code staff who perform a FCA-designated senior management function, five years,2 and vesting no faster than on a pro-rata basis;2

    2. (b)

      for dual-regulated firms Remuneration Code staff who perform a PRA-designated senior management function, seven years, with no vesting taking place until three years after the award, and vesting no faster than on a pro-rata basis; and2

    3. (c)

      for any other dual-regulated firms Remuneration Code staff who do not fall within (a) or (b) above, four years, and vesting no faster than on a pro-rata basis.2

  2. (1A)

    In relation to dual-regulated firms Remuneration Code staff who are not higher paid material risk takers, a firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, is deferred over a period which is not less than:2

    1. (a)

      for dual-regulated firms Remuneration Code staff who perform a FCA-designated senior management function at a significant firm, five years, and vesting no faster than on a pro-rata basis;2

    2. (b)

      for dual-regulated firms Remuneration Code staff who perform a PRA-designated senior management function at a significant firm, five years, and vesting no faster than on a pro-rata basis;2

    3. (c)

      for any other dual-regulated firms Remuneration Code staff who do not fall within (a) or (b) above, four years, and vesting no faster than on a pro-rata basis.2

  3. (2)

    In the case of a variable remuneration component:

    1. (a)

      of £500,000 or more, or

    2. (b)

      payable to a director of a significant firm2;

    at least 60% of the amount must be deferred on the basis set out in SYSC 19D.3.59R(1) and vesting no faster than on a pro-rata basis2.

  4. (3)

    Subject to (1), the length of the deferral period must be established in accordance with the business cycle, the nature of the business, its risks and the activities of the employee in question.

[Note: article 94(1)(m) of the CRD and Standards 6 and 7 of the FSB Compensation Standards]

SYSC 19D.3.60 G RP
  1. (1)

    Deferred remuneration paid in:

    1. (a)

      shares or share-linked instruments should be made under a scheme which meets appropriate criteria, including risk adjustment of the performance measure used to determine the initial allocation of shares;

    2. (b)

      cash should also be subject to performance criteria.

  2. (2)

    The FCA would generally expect a firm to have a firm-wide policy (and group-wide policy, where appropriate) on deferral. The proportion deferred should generally rise with the ratio of variable remuneration to fixed remuneration and with the amount of variable remuneration. While any variable remuneration component of £500,000 or more paid to dual-regulated firms Remuneration Code staff must be subject to 60% deferral, firms should also consider whether lesser amounts should be considered to be 'particularly high' taking account, for example, of whether there are significant differences within dual-regulated firms Remuneration Code staff in the levels of variable remuneration paid.

Remuneration Principle 12(h): Remuneration structures - performance adjustment (affordability, malus, clawback)

SYSC 19D.3.61 R RP

A firm must ensure that:

  1. (1)

    any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified on the basis of the performance of the firm, the business unit and the individual concerned;

  2. (2)

    any variable remuneration is subject to clawback, such that it is only awarded if an amount corresponding to it can be recovered from the individual by the firm if the recovery is justified on the basis of the circumstances described in SYSC 19D.3.62R(2) and SYSC 19D.3.64R;

  3. (3)

    for higher paid material risk takers, variable remuneration is subject to clawback for a period of at least seven years from the date on which the variable remuneration is awarded2;

  4. (3A)

    for dual-regulated firms Remuneration Code staff who are not higher paid material risk takers:2

    1. (a)

      who are PRA-designated senior management function holders at a significant firm, the deferred component of variable remuneration is subject to clawback for a period of at least six years from the date on which the variable remuneration is awarded;2

    2. (b)

      who are FCA-designated senior management function holders at a significant firm, the deferred component of variable remuneration is subject to clawback for a period of at least six years from the date on which the variable remuneration is awarded;2

    3. (c)

      who do not fall within (a) or (b) above, the deferred component of variable remuneration is subject to clawback for a period of at least five years from the date on which the variable remuneration is awarded;2

    4. (d)

      the undeferred component of variable remuneration is subject to clawback for a period of at least one year from the date on which the variable remuneration is awarded; and2

  5. (4)

    for dual-regulated firms Remuneration Code staff whose total annual remuneration is greater than £500,000 and2 who perform either a PRA-designated senior management function or FCA-designated senior management function, it can, by notice to the employee2 to be given no later than seven years after the variable remuneration was awarded, extend the period during which variable remuneration is subject to clawback to at least ten years from the date on which the variable remuneration is awarded, where:

    1. (a)

      the firm has commenced an investigation into facts or events which it considers could potentially lead to the application of clawback were it not for the expiry of the clawback period; or

    2. (b)

      the firm has been notified by a regulatory authority (including an overseas regulatory authority) that an investigation has been commenced into facts or events which the firm considers could potentially lead to the application of clawback by the firm were it not for the expiry of the clawback period; and

  6. (5)

    it considers on an ongoing basis whether to use the power in (4).

[Note: article 94(1)(n) of the CRD and Standards 6 and 9 of the FSB Compensation Standards]

SYSC 19D.3.62 R RP

A firm must:

  1. (1)

    set specific criteria for the application of malus and clawback; and

  2. (2)

    ensure that the criteria for the application of malus and clawback in particular cover situations where the employee:

    1. (a)

      participated in, or was responsible for, conduct which resulted in significant losses to the firm; or

    2. (b)

      failed to meet appropriate standards of fitness and propriety.

[Note: article 94(1)(n) of the CRD and Standards 6 and 9 of the FSB Compensation Standards]

[Note: The FSA also gave guidance on the application of the requirements on risk adjustments. This guidance is available on the FCA website at https://www.fca.org.uk/firms/being-regulated/remuneration-codes.]

SYSC 19D.3.63 E RP
  1. (1)

    A firm should reduce unvested deferred variable remuneration when, as a minimum:

    1. (a)

      there is reasonable evidence of employee misbehaviour or material error; or

    2. (b)

      the firm or the relevant business unit suffers a material downturn in its financial performance; or

    3. (c)

      the firm or the relevant business unit suffers a material failure of risk management.

  2. (2)

    For performance adjustment purposes, awards of deferred variable remuneration made in shares or other non-cash instruments should provide the ability for the firm to reduce the number of shares or other non-cash instruments.

  3. (3)

    Contravention of any of (1) or (2) may be relied on as tending to establish contravention of SYSC 19D.3.61R(1) on performance adjustment.

SYSC 19D.3.64 R RP
  1. (1)

    A firm must make all reasonable efforts to recover an appropriate amount corresponding to some or all vested variable remuneration where either of the following circumstances arise during the period in which clawback applies (including any part of such period occurring after the relevant employment has ceased):

    1. (a)

      there is reasonable evidence of employee misbehaviour or material error; or

    2. (b)

      the firm or the relevant business unit suffers a material failure of risk management.

  2. (2)

    A firm must take into account all relevant factors (including, where the circumstances described in (1)(b) arise, the proximity of the employee to the failure of risk-management in question and the employee’s level of responsibility) in deciding whether, and to what extent it is reasonable, to seek recovery of any or all of their vested variable remuneration.

SYSC 19D.3.65 G RP

The governing body (or, where appropriate, the remuneration committee) should approve performance adjustment policies, including the triggers under which adjustment would take place. The FCA may ask firms to provide a copy of their policies and expects firms to make adequate records of material decisions to operate the adjustments.

Effect of breaches of the Remuneration Principles

SYSC 19D.3.66 R

SYSC 19D Annex 1 makes provision about voiding and recovery.

SYSC 19D.3.67 R RP
  1. (1)

    Subject to (2) to (7), the rules in SYSC 19D Annex 1.1R to 1.6R apply in relation to the prohibitions on dual-regulated firms Remuneration Code staff being remunerated in the ways specified in:

    1. (a)

      SYSC 19D.3.44R (guaranteed variable remuneration);

    2. (b)

      SYSC 19D.3.59R (1deferred variable remuneration);

    3. (c)

      SYSC 19D.3.61R(2) (performance adjustment – clawback); and

    4. (d)

      SYSC 19D Annex 1.10R (replacing payments recovered or property transferred).

  2. (2)

    Paragraph (1) applies only to those prohibitions as they apply in relation to a firm that satisfies either Condition 1 or Condition 2 as set out in (3) and (4).

  3. (3)

    Condition 1 is that the firm is a UK bank, a building society, or a UK designated investment firm, that has relevant total assets exceeding £50 billion.

  4. (4)

    Condition 2 is that the firm:

    1. (a)

      is either a full credit institution or a UK designated investment firm; and

    2. (b)

      is part of a group containing a firm that has relevant total assets exceeding £50 billion and that is a UK bank1, a building society or a UK designated investment firm.

  5. (5)

    For the purposes of this rule, ‘relevant total assets’ means the arithmetic mean of the firm's total assets as set out in its balance sheet on its last three accounting reference dates.

  6. (6)

    This rule does not apply in relation to the prohibition on dual-regulated firms Remuneration Code staff being remunerated in the way specified in SYSC 19D.3.44R (guaranteed variable remuneration) if both the conditions in paragraphs (2)(b) and (2)(c)1 of that rule are met.

  7. (7)

    This rule does not apply to a firm in relation to an individual (X), where both the following conditions are satisfied:2

    1. (a)

      Condition 1 is that X’s annual2 variable remuneration is no more than one third of X’s total annual2remuneration; and

    2. (b)

      Condition 2 is that X’s total annual variable2 remuneration is no more than £44,0003.

      2
  8. (8)

    In relation to (7):

    1. (a)

      references to remuneration are to remuneration awarded or paid in respect of the relevant performance year;

    2. (b)

      the amount of any remuneration is:

      1. (i)

        if it is money, its amount when awarded;

      2. (ii)

        otherwise, whichever of the following is greatest:

        1. (A)

          its value to the recipient when awarded;

        2. (B)

          its market value when awarded; and

        3. (C)

          the cost of providing it;

      3. (c)

        where remuneration is, when awarded, subject to any condition, restriction or other similar provision which causes the amount of the remuneration to be less than it otherwise would be, that condition, restriction or provision is to be ignored in arriving at its value; and

      4. (d)

        it is to be assumed that the member of dual-regulated firms Remuneration Code staff will remain so for the duration of the relevant performance year.

SYSC 19D.3.68 G RP
  1. (1)

    Sections 137H and 137I of the Act enable the FCA to make rules that render void any provision of an agreement that contravenes specified prohibitions in the dual-regulated firms Remuneration Code, and that provide for the recovery of any payment made, or other property transferred, in pursuance of such a provision.

  2. (2)

    SYSC 19D.3.66R and SYSC 19D.3.67R (together with SYSC 19D Annex 1) are:

    1. (a)

      rules referred to in (1) that render void provisions of an agreement that contravene the specified prohibitions on guaranteed variable remuneration, non-deferred variable remuneration and replacing payments recovered or property transferred; and

    2. (b)

      the exception to the general position set out in section 138E(2) of the Act that a contravention of a rule does not make any transaction void or unenforceable.

SYSC 19D Annex 1 Detailed provisions on voiding and recovery (SYSC 19D.3.66R and SYSC 19D.3.67R)

Rendering contravening provisions of agreements void

1

R

Any provision of an agreement that contravenes a prohibition on persons being remunerated in a way specified in a rule to which this rule applies (a ‘contravening provision’) is void.

2

R

A contravening provision does not cease to be void because:

(1)

the firm concerned ceases to satisfy any of the conditions set out in SYSC 19D.3.67R(3) to (4); or

(2)

the member of dual-regulated firms Remuneration Code staff concerned starts to satisfy both of the conditions set out in SYSC 19D.3.67R(7)(a) and (b).

3

R

A contravening provision that, at the time a rule to which this rule applies was first made (including any previous rules in the FCA Handbook), is contained in an agreement made before that time is not rendered void by SYSC 19D Annex 1.1R, unless it is subsequently amended so as to contravene such a rule.

4

G

The effect of SYSC 19D Annex 1.3R, in accordance with sections 137H and 137I of the Act, is to prevent contravening provisions being rendered void retrospectively. However, contravening provisions may be rendered void if they are contained in an agreement made after the rule containing the prohibition is made by the FCA but before the rule comes into effect.

5

R

(1)

A pre-existing provision is not rendered void by SYSC 19D Annex 1.1R.

(2)

In this Annex, a pre-existing provision is any provision of an agreement that would (but for this rule) be rendered void by SYSC 19D Annex 1.1R that was agreed at a time when either:

(a)

the firm concerned did not satisfy any of the conditions set out in SYSC 19D.3.67R(3) to (4); or

(b)

the member of dual-regulated firms Remuneration Code staff concerned satisfied both of the conditions set out in SYSC 19D.3.67R(7)(a) and (b).

(3)

But an amendment to, or in relation to, a pre-existing provision is not to be treated as a pre-existing provision where the amendment is agreed at a time when both:

(a)

the firm concerned satisfies at least one of the conditions set out in SYSC 19D.3.67R(3) to (4); and

(b)

the member of dual-regulated firms Remuneration Code staff concerned does not satisfy both of the conditions set out in SYSC 19D.3.67R(7)(a) and (b).

6

R

For the purposes of this chapter, it is immaterial whether the law which (apart from this annex) governs a contravening provision is the law of the United Kingdom, or of a part of the United Kingdom.

Recovery of payments made or property transferred pursuant to a void contravening provision

7

R

In relation to any payment made or other property transferred in pursuance of a contravening provision other than a pre-existing provision, a firm must take reasonable steps to:

(1)

recover any such payment made or other property transferred by the firm; and

(2)

ensure that any other person (P) recovers any such payment made or other property transferred by that person.

8

R

SYSC 19D Annex 1.7R continues to apply in one or both of the following cases:

(1)

the firm concerned ceases to satisfy any of the conditions set out in SYSC 19D.3.67R(3) to (4);

(2)

the member of dual-regulated firms Remuneration Code staff concerned starts to satisfy both of the conditions set out in SYSC 19D.3.67R(7)(a) and (b).

9

G

The rule in SYSC 19D Annex 1.7R(2) would, for example, apply in the context of a secondment. Where a group member seconds an individual to a firm and continues to be responsible for the individual’s remuneration in respect of services provided to the firm, the firm would need to take reasonable steps to ensure that the group member recovers from the secondee any remuneration paid in pursuance of a contravening provision.

Replacing payments recovered or property transferred

10

R

(1)

A firm must not award, pay or provide variable remuneration to a person who has received remuneration in pursuance of a contravening provision other than a pre-existing provision (the ‘contravening remuneration’) unless the firm has obtained a legal opinion stating that the award, payment or provision of the remuneration complies with the dual-regulated firms Remuneration Code.

(2)

This rule applies only to variable remuneration relating to a performance year to which the contravening remuneration related.

(3)

The legal opinion in (1) must be properly reasoned and be provided by an appropriately qualified independent individual.

(4)

Paragraph (1) continues to apply in one or both of the following cases:

(a)

the firm concerned ceases to satisfy any of the conditions set out in SYSC 19D.3.67R(3) to (4);

(b)

the member of dual-regulated firms Remuneration Code staff concerned starts to satisfy both of the conditions set out in SYSC 19D.3.67R(7)(a) and (b).

Notification to the FCA

11

G

The FCA considers any breach of a rule to which this annex applies to be a significant breach which should be notified to the FCA in accordance with SUP 15.3.11R (Breaches of rules and other requirements in or under the Act). Such a notification should include information on the steps which a firm or other person has taken or intends to take to recover payments or property in accordance with SYSC 19D Annex 1.7R.