Keeping you up to date with the important changes in the employment and financial services sector:

EBA Consultation on draft guidelines on remuneration requirements for sales staff

On 22 December 2015 the EBA launched a consultation on its draft guidelines on remuneration policies and practices relating to the sale and provision of retail banking products and services. Consultation ends on 22 March 2016 and the finalised guidelines are expected by summer 2016.

The guidelines specify requirements for the design and implementation on remuneration policies and practices and will apply from 3 January 2017.

Read the draft guidelines here

Tougher Rules on bonus buy-outs

The Bank of England is proposing to strengthen the remuneration requirements on buy-outs of variable remuneration. In a consultation paper published on 13 January 2016 the PRA proposes a model allowing for malus and clawback to be applied to deferred bonus awards that have been ‘bought out’ by a new employer. The PRA proposes a contract between new employer and employee whereby the old employer can notify the new employer of a determination that malus/ clawback should apply to deferred variable remuneration. Consultation closes on 13 April 2016.

Read the proposed requirements here

Bonus Clawback

From 1 January 2016, FCA authorised firms are subject to the requirement that the employer must have the power to claw back variable pay for up to seven years after it has vested where there has been employee misconduct or material error or where the firm suffers a material failure of risk management.

From 1 January 2016 PRA and FCA firms in proportionality levels one and two must have the possibility of extending clawback to ten years for senior managers where there are outstanding internal or regulatory investigations at the end of the normal seven-year clawback period.

Read the clawback policy statement here

Read the new remuneration rules here

Strengthening accountability in banking: amendments to notification rules and forms

On 6 January 2016 the FCA and the PRA published consultation on minor amendments to forms and the Conduct Rules notifications in light of proposed changes in the Bank of England and Financial Services Bill and in particular to reflect the removal of s.64B (5) in the Financial Services and Markets Act 2000 (which required authorised persons to notify the regulator if they knew or suspected that a person performing a Senior Management Function had failed to comply with the Conduct Rules). Consultation closes on 8 February 2016.

Read the amendments to notification rules and forms here

Read the changes to the Senior Managers Regime here

Flows of Confidential and Inside Information

In December 2015 the FCA published the findings of a thematic review into how a sample of investment banking firms manage the confidential and inside information they receive and generate. It noted that heightened risks arise where there are changes to a firm’s business model or rapid growth. Firms should regularly assess conduct risks especially in such circumstances. The FCA noted that senior management did not always clearly understand responsibility and accountability in managing flows of information and that some employees shared information without adequate deliberation. The report recommended the implementation of robust systems, procedures and infrastructure. The review is relevant to senior management, front office staff and all staff comprising the first, second and third lines of defence at UK-based and FCA-regulated financial services firms.

Read the Flows of Confidential and Inside Information here

European Commission Consultation on impacts of maximum remuneration ratio under CRD IV and overall efficiency of CRD IV remuneration rules

On 22 October 2015 the European Commission published a consultation on the maximum ratio rule (where the variable remuneration of institutions’ staff whose professional activities have a material impact on their employer’s risk profile cannot exceed 100% (or 200% with shareholder approval) of fixed remuneration). The EC will review and report on the application of the rule and the impact of the remuneration rules in CRD IV by 30 June 2016. The aim of the consultation is to seek views from stakeholders and the responses will be taken into account in the EC’s report. Consultation closed on 14 January 2016.

Financial Reporting Council: annual report

On 14 January 2016 the Financial Reporting Council (FRC) published its annual report into corporate governance and stewardship. The FRC stated that it does not intend to make substantial revisions to the UK Corporate Governance Code for the next three years and the minor revisions currently proposed are as a result of implementing the EU Audit Regulation and Directive. Future work on Corporate Governance will be taken through market-led and collaborative initiatives and in 2016 the FRC will focus on corporate culture. The aim is to carry out research which will be helpful to boards.

The FRC also notes that the UK Stewardship Code has helped to raise the profile of stewardship and led to improvements in engagement between investors and companies. It intends to scrutinize the Code signatory statements to distinguish those whose reporting is of high quality and those where improvement is required.

The FRC is holding an Open Meeting at Sadlers Hall, 40 Gutter Lane EC2V 6BR on 10 February for stakeholders to comment on its priorities.

PRA Q&As on the Senior Insurance Managers Regime

On 22 December 2015 the PRA published a list of Q&As on the Senior Insurance Managers Regime (SIMR) in response to queries posed by industry participants on the application of the new regime to Solvency II insurers.

Read the PRA Q&As on the SIMR here 


Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis UKSC [2015] 67

This case considers the status of contractual clauses that provide for the payment of a specified sum on a certain event and whether such a clause is unenforceable for being a penalty clause. The Supreme Court held that to be a penalty, the detriment must be out of all proportion to the interested party’s legitimate interest.

Read the full case here

Patural v DB Services (UK) Ltd [2015] EWHC 3659

The High Court has dismissed a claim that the award of a low bonus was in breach of express and implied terms of a trader’s contract of employment. Significantly, the High Court found that DB Services Ltd had not behaved irrationally in exercising its discretion to award a bonus of one per cent.

Read the full case here