PRA and FCA publish new remuneration rules: FCA and PRA have published a joint policy statement on new remuneration rules, together with new rules, guidance and policy papers. The changes apply to banks, building societies and PRA-designated investment firms, including UK branches of non-EEA firms. They apply to all "material risk takers" in these firms, including senior managers designated under the new senior managers regime (SMR). The main changes:
- extend deferral to seven years for senior managers, five years for PRA-designated risk managers with senior, managerial or supervisory roles, and three to five years for other material risk takers;
- introduce clawback for periods of seven years from the award of variable remuneration for material risk takers, with the possibility to add three further years for senior managers who are under investigation at the end of the seven-year period;
- ban variable pay for non-executive directors;
- clarify that firms which have taxpayer support cannot award any variable pay or discretionary payments to their management; and
- strengthen PRA requirements on dual-regulated firms so there is more effective risk adjustment on variable remuneration.
The rules will apply from 1 July 2015, except for those on clawback and deferral, which will apply to variable remuneration on performance periods beginning on or after 1 January 2016. Changes to the rules comprise:
- for PRA's Rulebook, a Remuneration Part of the Rulebook with consequential changes to the Handbook (including repealing chapter 19A of the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC)). PRA has published a supervisory statement alongside the changes, which it says firms should read in conjunction with its two existing supervisory statements on remuneration, which it has updated to reflect the new rule references;
- for FCA's Handbook, a new chapter SYSC 19D, containing the dual-regulated firms' Remuneration Code. Chapter 19A becomes the Remuneration Code for "IFPRU" firms. FCA has also published new general guidance on proportionality and has amended two existing pieces of guidance, as well as non-Handbook guidance on the application of malus to variable remuneration and ex-post risk adjustment; and
- for both regulators, minor changes to the rule on the bonus cap to more closely reflect the wording in the CRD, without changing policy.
FCA finalises fees: FCA has published its feedback and final rules on fees and levies for 2015/16. Many respondents to FCA's consultation complained about the overall increase in the annual funding requirement, but FCA has not changed the amount, which is an increase of 7.9% from last year. It says this is mainly driven by a 6% increase in its ongoing regulatory activities, which include delivering on its competition objective and investing in Project Innovate. FCA also received complaints on its proposals for some fee-blocks but has made minimal change from its consultation figures. (Source: FCA Finalises Fees)
FCA and CLLS exchange letters on unfair terms guidance: The City of London Law Society (CLLS) wrote to FCA in April asking it to explain why it had withdrawn its guidance on unfair terms from its website and to ask what firms were supposed to do in its absence. FCA responded that it had explained the reasons for withdrawal, amongst which was the European Court's decision in Jean-Claude Van Hove v. CNP Assurances SA – see FReD 1 May), and said that firms should seek their own legal advice. (Source: Letter to FCA Regarding Withdrawal of Unfair Contract Terms Guidance (Dated 22 April 2015) and Response From FCA to CLLS re Withdrawal of Unfair Contract Terms Guidance (Dated 19 May 2015))
FCA publishes Market Watch: FCA's latest Market Watch includes items on:
- trade volume advertising: FCA is aware of the reasons and circumstances in which firms wish to inform the market of volumes but has noted risks of market abuse. It suggests questions firms should consider when advertising trading volume to check their actions comply with FCA rules and will not constitute market abuse;
- FCA's observations from suspicious transaction reporting (STR) supervisory visits: FCA noted that STR submission is not consistent across all areas of industry and says submission levels are too low in places. It says the quality of STRs it receives is good and it is not looking to reduce quality nor encourage defensive reporting. Its advice focuses on training firms give, specifically to front-office staff, to ensure they escalate suspicions appropriately. It also looks at the importance of calibrating surveillance systems correctly;
- Direct Electronic Access (DEA) pre-trade controls: FCA has carried out a review, and noted that certain market incidents could have been avoided had firms implemented proper controls. It will continue to monitor compliance, and notes that the RTS ESMA is developing in the context of the revised Markets in Financial Instruments Directive (MiFID 2) will formalise and expand on existing guidelines.
(Source: Market Watch Issue 48)
FCA consults on mutuals: FCA is consulting on a second set of issues relating to its duties to ensure mutual societies registered as co-operative community benefit societies are complying with appropriate rules. It seeks feedback on its:
- views on the setting of interest rates;
- concept of a ‘bona fide co-operative society’; and
- names policy.
It asks for responses by 14 August. (Source: FCA Consults on Mutuals)
FCA supports Treasury on pension freedoms: FCA and Treasury have exchanged letters confirming that:
- in July Treasury will consult on how to remove barriers to pension transfers. The consultation will consider excessive early exit penalties and introducing a standardised transfer process;
- between June and August, FCA will gather evidence of prevalence and level of exit fees and charges across the industry to develop a solid evidence base for proportionate intervention; and
- FCA will support Treasury further by assessing the process and timing barriers which may face consumers seeking to transfer with a view to informing the design of a new standardised process.
FCA to revoke investment through nominees rules: FCA is consulting on revoking rules and guidance scheduled to come into force later this year that would require certain disclosures and other actions by firms that are "intermediate unitholders" in authorised investment funds. FCA has already postponed implementation of the changes once, and now believes the rationale for the changes will be affected by planned papers on communications with customers and on an asset management study. As a result, it plans to revoke the rules relating to notifications to beneficial owners about short reports, unitholder voting rights and other fund information, and will reconsider the rules in 2016. FCA asks for comment by 17 July. (Source: FCA to Revoke Investment Through Nominees Rules)
FCA issues add-on remedies paper: FCA has published a discussion paper on "value measures" in relation to the remedies proposed to address general insurance add-ons. The paper looks at ways to assess the value of a product in these markets and suggests three options for a value measure. FCA seeks comments by 24 September. (Source: FCA Issues Add-On Remedies Paper)
Jail for unauthorised CIS operator: Adam Hawkins has been sentenced to 6 years and 9 months imprisonment for his involvement in operating an unauthorised collective investment scheme through three land banking companies as a result of which over 110 investors lost at least £4.3 million. FCA had already announced the sentences for seven other individuals involved in the schemes, run as Plott UK, European Property Investments (UK) Ltd and Stirling Alexander Limited. (Source: Jail for Unauthorised CIS Operator)