The FCA has now published its near final rules for the single remuneration code for MIFID investment firms. The new code will replace the existing BIPRU and IFPRU Remuneration Codes and will be known as the MIFIDPRU Remuneration Code (“MIFIDPRU”). MIFIDPRU will apply to performance periods beginning on or after 1st January 2022 and will require many firms to implement changes to their reward policies and practices. A copy of the FCA Policy Statement (PS21/9) containing the near final rules can be found here.


MIFIDPRU is based on (but differs in some respects from) the remuneration rules set out in the EU Investment Firms Regulation ((EU) 2019/2033) (IFR) and the Investment Firms Directive ((EU) 2019/2034) (IFD). The FCA’s stated objectives are to:

  • promote effective risk management in the long‑term interests of the firm and its customers;

  • ensure alignment between risk and individual reward;

  • support positive behaviours and healthy firm cultures; and

  • discourage behaviours that can lead to misconduct and poor customer outcomes.[1]

MIFIDPRU will apply to performance periods beginning on or after 1st January 2022. Importantly the focus is on the ‘performance period’ rather than the date on which remuneration is awarded or paid out. This means that firms currently subject to the existing IFPRU and/or BIPRU Remuneration Codes should continue to apply those rules in respect of remuneration paid in 2022 which relates to performance or services provided during a period which started before 1st January 2022.

Overview of the MIFIDPRU Remuneration Code

The extent to which the MIFIDPRU Remuneration Code applies to a firm depends on how it is categorised under the new Investment Firm Prudential Regime (IFPR). Broadly speaking, this categorisation is based on a number of financial thresholds, the details of which can be found in the FCA’s IFPR publications.[2] There are three categories:

  • Smaller and non-interconnected firms (SNIs)

  • Non-SNIs

  • Largest Non-SNIs

We have summarised the main requirements in the table below (the Disclosure requirements are covered separately below).


Remuneration Requirements

FCA Guidance


Basic remuneration requirements:

  • Applies to all staff.
  • All firms should have a remuneration policy for all staff.
  • The remuneration policy must be proportionate to the size of the firm and should promote sound and effective risk management.
  • The remuneration policy must be gender neutral. This means it must be 'based on equal pay for male and female workers for equal work or work of equal value'.
  • The remuneration policy must have a clear distinction between the criteria that determine fixed and variable pay, and these two components must be “appropriately balanced”, i.e. ensuring that no individual is dependent on variable remuneration to such an extent that they take excessive risks.
  • The remuneration policy must be periodically reviewed by the management body, with support from the control functions.
  • When assessing individual performance, both financial and non‑financial criteria must be taken into account.

Chapter 10 of CP21/7, Chapter 3 of CP21/26 and Chapter 8 of PS21/9

Non-SNIs (not Largest)

Standard remuneration requirements:

  • Includes the basic remuneration requirements (see above).
  • Remuneration policy must be reviewed annually.
  • In relation to staff identified as Material Risk Takers (“MRTs”):
    • They must be identified annually
    • Variable remuneration must be based on a combination of the performance of the individual, the relevant business unit, and the firm overall, and performance must be assessed over a multi-year period
    • Restrictions on non-performance related variable pay, e.g., guaranteed variable remuneration, retention awards, buyouts and severance pay
    • Ex-ante and ex-post risk adjustment should be possible (including malus and clawback)
    • Firms must set appropriate ratios between fixed and variable pay –ratios can vary from year to year (firms will have discretion as regards what is ‘appropriate’ – there will be no prescriptive bonus cap)

Chapter 11 of CP21/7, Chapter 3 of CP21/26, and Chapter 9 of PS21/9

Non-SNIs (Large)[4]

Extended remuneration requirements:

  • Includes the standard remuneration requirements (see above).
  • In relation to MRTs:
    • Deferral of at least 40% of variable pay for at least three years, and at least 60% if variable pay is particularly high (this is undefined, other than variable pay of £500,000 or over qualifies)
    • Longer deferral for members of the management body or senior management
    • Vesting no faster than pro rata
    • At least 50% of variable pay should be in shares or non-cash instruments
    • All shares and instruments issued for variable pay are subject to an appropriate retention policy (no minimum period imposed).
    • Firms must have a remuneration committee (can be group wide in certain circumstances). Chair and at least 50% of members must be non-executive members of the management body
    • Discretionary pension benefits subject to a payment in shares requirement and holding periods

Chapter 12 of CP21/7, Chapter 3 of CP21/26 and Chapter 10 of PS21/9.

Further Analysis

Gender Neutral

Some respondents to an earlier IFPR discussion paper queried why the remuneration policy should be gender neutral, since that is already a requirement of the equal pay legislation. However, the FCA wanted to include it to “support and reaffirm our aim to drive healthy purposeful cultures in firms, which includes developing an inclusive and diverse workplace”.[5] This requirement will not impose any additional burden on firms.

Conflicts of Interest

The FCA have said that, to mitigate the risk of conflicts of interest arising, no variable remuneration should be awarded to members of the management body who do not perform any executive function in the firm, e.g. non-executive directors.[6]

Disclosure Requirements

The FCA requires certain remuneration information to be publicly disclosed, namely:[7]

  • the key characteristics of their remuneration policies and practices;

  • certain quantitative disclosures about the remuneration outcomes of their staff;

  • the types of staff they have identified as MRTs (non-SNI firms only).

In line with its approach to proportionality under the MIFIDPRU Remuneration Code, a firm must disclose information in line with its category under the MIFIDPRU Remuneration Code (see above). Larger firms are expected to disclose more detail. Disclosures need to be easily accessible and understandable by stakeholders, so firms will need to publish their disclosures in an easily found part of their website and use easily understood language and diagrams, where relevant. Firms must publish their disclosures annually, alongside their annual financial statements (or annual solvency statement). Disclosures should be made more frequently if a firm undergoes a significant change, e.g. a merger or acquisition.

Material Risk Takers

MRTs are to be identified on the basis of certain criteria. The FCA said “The aim is to identify all those individuals whose professional activities can have a material impact on the risk profile of the firm or the assets it manages. In conducting this exercise, an FCA investment firm should consider all types of risks involved in its professional activities. These may include prudential, operational, market, conduct and reputational risks.[8] There is no requirement to identify MRTs based on remuneration alone, as this is not a reliable indicator of the level of risk involved in a particular role within an firm. Instead, the assessment will be made on the basis of qualitative criteria. For Large Non-SNI firms to which the extended remuneration requirements apply, MRTs are exempt from those rules if (i) they receive variable remuneration of £167,000 or less, and (ii) that variable remuneration makes up one third or less of their total remuneration.[9] Both criteria must be met for the exemption to apply. However, note that this exemption only applies with respect to the extended remuneration requirements and the basic and standard remuneration requirements will still apply to those MRTs.

Malus and Clawback

Firms must determine their own triggers for applying malus or clawback. However, the FCA has said malus should be applied where i) there is reasonable evidence of employee misbehaviour or material error, ii) the firm or the relevant business unit suffers a material downturn in its financial performance, or iii) the firm or the relevant business unit suffers a material failure of risk management, and clawback should always be applied in cases of fraud or other conduct with intent or severe negligence which led to significant losses. For large Non-SNIs, their remuneration policies must include the possibility of applying in-year adjustments, malus and clawback.[10]

Non-Performance Related Variable Remuneration

The MIFIDPRU Remuneration Code includes rules and guidance on the use of non-performance related variable remuneration, e.g. guaranteed variable remuneration, retention awards, buy-out awards and severance pay for MRTs.[11] Guaranteed variable remuneration (also referred to as a ‘sign-on bonus’ or ‘golden handshake’) should only be awarded to MRTs rarely and not as common practice, in the context of hiring a new MRT, in the first year of service and where the firm has a strong capital base. Retention awards are permitted but should be used only rarely (e.g. in the context of specific projects) and should be awarded only after the retention period has ended. Buy-out awards involve a firm compensating a new employee whose deferred variable remuneration was reduced by their previous employer. Non-SNIs must ensure the buy-out is aligned with the long‑term interests of their firm and remains subject to the same pay-out terms required by the previous employer, e.g. by following the same deferral and vesting schedule. Non-SNIs should set out any criteria for determining severance pay in their remuneration policy and all severance payments must reflect the individual’s performance over time and must not reward failure or misconduct.

Discretionary Pensions Benefits

For the purposes of the application of remuneration rules, discretionary pension benefits are treated as a form of variable remuneration. Under the new rules, all non-SNIs will be required to:

  • ensure that all discretionary pension benefits are in line with the business strategy, objectives, values and long‑term interests of the firm

  • award the full amount in shares, instruments or within any alternative arrangements the FCA has approved

  • apply malus and clawback to discretionary pension benefits in the same way as to other elements of variable remuneration[12]

In addition, under the extended remuneration requirements, if an MRT leaves the firm before retirement age, non-SNIs must hold these discretionary pension benefits for 5 years in the form of shares, instruments or within any alternative arrangements. Where the MRT leaves the firm upon reaching retirement age, the pension benefits must be paid out in shares, instruments or within any alternative arrangements and the MRT must retain them for 5 years.[13]

Co-investments and carried interest

There are new rules on co-investments and carried interest[14] and the FCA has confirmed that the MIFIDPRU Remuneration Code applies to carried interest and that carried interest must be valued at the time of its award.[15] The FCA said they would not usually consider returns made by staff on co-investment arrangements to be remuneration for the purposes of its rules, but they would usually consider carried interest to be remuneration.

Next Steps

These are the steps firms should be thinking about ahead of 1 January 2022:

  • Assess which category of firm applies based on the financial thresholds (e.g. SNI)

  • Consider whether remuneration policies and practices should be reviewed and amended

  • Non-SNIs will need to determine which individuals are MRTs (which is likely to be wider than those carrying out senior management functions) and carry out a review of those individuals’ remuneration

  • Large Non-SNIs will need to consider whether they meet the requirements with respect to remuneration committees

  • Careful analysis will be needed by firms that are part of groups, including looking at applicable group consolidation rules

  • Multinational firms subject to MIFIDPRU Remuneration Code as well as IFD and IFR remuneration rules in other jurisdictions will need to consider issues such as the interaction of the regimes and the extent to which employees outside the UK might be caught by MIFIDPRU

  • Firms will need to come to terms with the new disclosure requirements and assess what needs to be disclosed and when

This article was first published in Thomson Reuters on Thursday 19 August 2021