On March 26, 2015, the FCA published proposed guidance on the application of ex-post risk adjustment to variable compensation (also known as performance adjustment). Ex-post risk adjustment is the adjustment of variable compensation to take into account a specific crystalized risk or adverse performance outcome and includes measures such as reducing current year awards, the application of malus and clawback. The proposed guidance is intended to amend and replace the guidance consulted on by the FCA in its joint consultation paper with the PRA on strengthening the alignment of risk and reward at the end of 2014. The revised proposed guidance will only apply to dual-regulated firms — banks, building societies and PRA-designated investments firms — and not to firms that are only regulated by the FCA, as was proposed in the 2014 consultation. The FCA notes that the revised proposed guidance may need to be amended depending on the outcome of the EBA’s consultation on guidelines on sound compensation policies under the EU Regulatory Capital Directive and Regulation, known as CRD IV. Responses to the FCA’s consultation are due by May 7, 2015. The FCA expects that the final revised proposed guidance will come into effect in summer 2015.
The consultation paper is available at: http://www.fca.org.uk/static/documents/guidance-consultations/gc15-02.pdf.