SYSC 19C.2 General requirement

1. (1)

   If a firm's remuneration policy is not aligned with effective risk management, it is likely that employees will have incentives to act in ways that might undermine effective risk management.

2. (2)

   The BIPRU Remuneration Code covers all aspects of remuneration that could have a bearing on effective risk management including salaries, bonuses, long-term incentive plans, options, hiring bonuses, severance packages and pension arrangements. In applying the BIPRU Remuneration Code, a firm should have regard to applicable good practice on remuneration and corporate governance, such as guidelines on executive contracts and severance produced by the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF). In considering the risks arising from its remuneration policies, a firm will also need to take into account its statutory duties in relation to equal pay and non-discrimination.

3. (3)

   As with other aspects of a firm's systems and controls, in line with SYSC 4.1.2 R and SYSC 4.1.2ABR, remuneration policies, procedures and practices must be comprehensive and proportionate to the nature, scale and complexity of the common platform firm's activities. Therefore, what a firm must do to comply with the BIPRU Remuneration Code will vary. For example, while the BIPRU Remuneration Code refers to a firm's remuneration committee and risk management function, it may be appropriate for the governing body of a smaller firm to act as the remuneration committee, and for the firm not to have a separate risk management function.

4. (4)

   The principles in the BIPRU Remuneration Code are used by the FCA to assess the quality of a firm's remuneration policies and whether they encourage excessive risk-taking by a firm's employees.

5. (5)

   The FCA may also ask remuneration committees to provide the FCA with evidence of how well the firm's remuneration policies meet the BIPRU Remuneration Code's principles, together with plans for improvement where there is a shortfall. The FCA also expects relevant firms to use the principles in assessing their exposure to risks arising from their remuneration policies as part of the internal capital adequacy assessment process (ICAAP).

6. (6)

   The BIPRU Remuneration Code is principally concerned with the risks created by the way remuneration arrangements are structured, not with the absolute amount of remuneration, which is generally a matter for firms' remuneration committees.

1. (1)

   The specific remuneration requirements in this chapter may apply only to certain categories of employee. However, the FCA expects firms, in complying with the BIPRU Remuneration Code general requirement, to apply certain principles on a firm-wide basis.

2. (2)

   In particular, the FCA considers that firms should apply the principle relating to guaranteed variable remuneration on a firm-wide basis (Remuneration Principle 12(c); SYSC 19C.3.40 R to SYSC 19C.3.43 G.

3. (3)

   The FCA also expects firms to apply, as a minimum, the principles relating to risk management and risk tolerance (Remuneration Principle 1); supporting business strategy, objectives, values and long-term interests of the firm (Remuneration Principle 2); conflicts of interest (Remuneration Principle 3); governance (Remuneration Principle 4); risk adjustment (Remuneration Principle 8); pension policy (Remuneration Principle 9); personal investment strategies (Remuneration Principle 10); payments related to early termination (Remuneration Principle 12(e)) and deferral (Remuneration Principle 12(g)) on a firm-wide basis.

In line with the record-keeping requirements in SYSC 9, a firm should ensure that its remuneration policies, practices and procedures are clear and documented. Such policies, practices and procedures would include performance appraisal processes and decisions.

Remuneration includes, for example, payments made by a seconding organisation which is not subject to the BIPRU Remuneration Code to a secondee in respect of their employment by a firm which is subject to the BIPRU Remuneration Code.