Earlier this year the FSA published Consultation Paper 09/10: Reforming remuneration practices in financial services (CP09/10). In CP09/10 the FSA set out proposals to implement a Code of practice on remuneration policies. The FSA consulted on incorporating the Code into the FSA Handbook and applying it to large banks, building societies and broker dealers. At the same time it invited general views on extending the Code to other FSA authorised firms.
The framework of the draft Code took the form of a general rule supported by ten principles which the FSA proposed to include in the FSA Handbook as ‘evidential provisions’ (EP) or, where appropriate, as guidance. The ten principles related to the three areas of governance, the measurement of performance and the composition of remuneration.
On the 12th of August, the FSA published Policy Statement 09/15: Reforming remuneration practices in financial services (PS09/15). In PS09/15 the FSA gives feedback on its consultation and sets out the final version of the Code. Key changes include:
- Removing non-UK firms from the scope unless they are part of a group that contains UK banks and building societies that have total regulatory capital exceeding £1bn orBIPRU730k firms that have total regulatory capital exceeding £750 million.
- Replacing principles 8, 9 and 10 - all of which relate to the structure of remuneration - with one new principle.
- The guidance accompanying principle 8 now includes a reference to guaranteed bonuses.
- Changing the implementation date from 6 November 2009 to 1 January 2010.
- A clearer distinction in the guidance to principle 1 between what the FSA expects firms to do to communicate their remuneration policies to it in the course of the supervisory relationship and what it would be good practice for them to disclose publicly to their shareholders and other stakeholders.
Chapter 6 of PS09/15 sets out further clarification as to how the FSA intends to implement the Code. This includes a request that firms within the scope of the Code should communicate their first remuneration policy statement (RPS) to the FSA by the end of October 2009. The FSA will communicate further details of what it expects an RPS to contain when it writes to the chairmen of firms’ remuneration committees by the end of August 2009.
In PS09/15 the FSA does not discuss extending the Code to other FSA authorised firms. A separate FSA document will address this issue and is due to be published in October 2009.
The FSA states that the key steps for the implementation of the Code are:
- By the end of August 2009 it will send letters to firms’ remuneration committees asking them to complete a remuneration policy statement.
- Firms return their remuneration policy statements to the FSA by end of October 2009.
- FSA holds meetings with remuneration committees and HR/risk function staff between November 2009 and February 2010.
- The Code comes into force for firms within its scope on 1 January 2010.
- The transitional arrangements for firms required to amend employment contracts that may be amended by the firm end on 31 March 2010. Transitional arrangements for firms required to amend or terminate other employment contracts end on 31 December 2010.