1. (1)

   1For the purposes of SYSC 19G.1.1R(5), the FCA expects a non-SNI MIFIDPRU investment firm to have insufficient data for a period only where it did not carry on any MiFID business during that period, or where (for periods prior to the application of the MIFIDPRU Remuneration Code) the firm did not record the relevant data on a monthly basis.

2. (2)

   Where a firm doesn’t have all the monthly data points, the firm should use the data points it has in the way that paints the most representative picture of the period in question. For example, if a firm has monthly data for 2 years of the 4-year period, but prior to that only recorded the relevant data on a quarterly basis, the firm could sensibly calculate its rolling average by using the quarterly figure for each of the 3 monthly data points in each quarter.

1The FCA considers that an example of an appropriate market rate for the purposes of SYSC 19G.1.4R(4) is the relevant daily spot exchange rate against pound sterling published by the Bank of England.

1The effect of SYSC 19G.1.8R(2)(a) is that a firm may move between meeting the conditions in SYSC 19G.1.1R(2)(a) and (b) during the 6-month period.

1Where a firm ceases to meet the conditions in SYSC 19G.1.1R(2)(a) or (b), but subsequently meets the conditions again within a period of 6 months, the firm will still be subject to the provisions referred to in SYSC 19G.1.1R(2) for 12 months after the date on which it first ceased to meet the conditions. The firm only ceases to be subject to the provisions referred to in SYSC 19G.1.1R(2) where it meets the conditions in SYSC 19G.1.8R(2).

1The MIFIDPRU Remuneration Code applies to a collective portfolio management investment firm.

1. (1)

   1A collective portfolio management investment firm must assess the thresholds in SYSC 19G.1.1R(2) and (3) on the basis of the total of both its MiFID business and non-MiFID business.

2. (2)

   SYSC 19G.1.20R to SYSC 19G.1.23G explain the position for firms subject to the MIFIDPRU Remuneration Code and another FCA remuneration code.

1 SYSC 19G.1.1R to SYSC 19G.1.15R and SYSC 19G.1.17R explain when the MIFIDPRU Remuneration Code applies to a firm on an individual basis. SYSC 19G.1.18R and 19G.1.19R explain when the MIFIDPRU Remuneration Code applies on a consolidated basis, and what that means.

1. (1)

   1Where the MIFIDPRU Remuneration Code applies on a consolidated basis, the effect of SYSC 19G.1.18R(5) is that the UK parent entity and all the investment firms, financial institutions, ancillary services undertakings and tied agents in the investment firm group are treated for these purposes as a single MIFIDPRU investment firm. This means, for example, treating a staff member of an undertaking within the investment firm group as if they were a staff member of the UK parent entity.

2. (2)

   When considering which rules in the MIFIDPRU Remuneration Code apply on a consolidated basis, a UK parent entity must consider whether it is treated as an SNI MIFIDPRU investment firm or a non-SNI MIFIDPRU investment firm under MIFIDPRU 2.5.21R (which, as SYSC 19G.1.18R(2) and (3) explain, also determines its categorisation under the MIFIDPRU Remuneration Code).

3. (3)

   The effect of SYSC 19G.1.18R(4)(b) is that a UK parent entity need not comply with the provisions listed in SYSC 19G.1.1R(4) on a consolidated basis. These provisions apply on an individual basis where a firm exceeds the thresholds in SYSC 19G.1.1R(2)(a) or (b). As these thresholds are not relevant where the MIFIDPRU Remuneration Code applies on a consolidated basis, the provisions concerning them are also disapplied.

1. (1)

   1SYSC 19G.1.20R states that where different remuneration requirements apply to a firm it must comply with the most stringent of the relevant provisions. Some non-exhaustive examples follow.

2. (2)

   Example 1: A firm may be subject to different requirements under the MIFIDPRU Remuneration Code on an individual basis and on a consolidated basis. This scenario may arise because a firm is an SNI MIFIDPRU investment firm on an individual basis but a non-SNI MIFIDPRU investment firm on a consolidated basis.

3. (3)

   Example 2: Different remuneration requirements may apply to a firm when an investment firm group contains both a PRA-designatedinvestment firm and an FCAinvestment firm (but not a credit institution). This may lead to a firm being subject to both the MIFIDPRU Remuneration Code and the Dual-regulated firms Remuneration Code.

4. (4)

   Example 3: A staff member at a collective portfolio management investment firm may be a material risk taker and also AIFM Remuneration Code Staff or UCITS Remuneration Code Staff. In this case the material risk taker will be subject to the MIFIDPRU Remuneration Code and the requirements of the AIFM Remuneration Code or the UCITS Remuneration Code.

1The effect of SYSC 19G.1.20R is that a firm must consider which requirement is the most stringent on a provision by provision basis.

1 SYSC 19G.1.20R is not relevant where a firm can comply with both sets of remuneration requirements, for example requirements to establish, implement and maintain remuneration policies and practices on both an individual basis and a consolidated basis.

1The term ‘staff’ should be interpreted broadly in the MIFIDPRU Remuneration Code to include, for example, employees of the firm itself, partners or members (in the case of partnership structures), employees of other entities in the group, employees of joint service companies, and secondees.

1The rules in the MIFIDPRU Remuneration Code apply to each performance period, regardless of whether it is annual, quarterly, or another frequency. A firm must comply with the rules on performance assessment and risk adjustment in relation to each such performance period.

1While the rules in the MIFIDPRU Remuneration Code set out the minimum regulatory requirements that a MIFIDPRU investment firm must comply with, the FCA considers it good practice for a firm to assess whether going beyond those regulatory requirements would contribute to sound risk management or a healthy firm culture.

1The remuneration policies and practices referred to in SYSC 19G.2.1R should cover all aspects of remuneration within the scope of the MIFIDPRU Remuneration Code, and all staff.

1In line with the record-keeping requirements in SYSC 9, a firm should ensure that its remuneration policies and practices (including performance assessment processes and decisions) are clear and documented.

1The proportionality principle in SYSC 19G.2.4R means that the content and level of detail of a firm’sremuneration policy may depend on a number of factors. These may include the number of staff it employs, the different types of roles, the activities it carries out, and whether the firm is part of a group with a group-wide remuneration policy.

1 Firms are reminded that the Equality Act 2010 prohibits discrimination on the basis of an individual's protected characteristics both before and after employment is offered. The Act applies to pay and all other contractual terms, including variable remuneration. A firm must ensure that its remuneration policy complies with the Equality Act 2010.

1For the purposes of SYSC 19G.2.9R, the business strategy, objectives and long-term interests of the firm should include consideration of:

1. (1)

   the firm’s risk appetite and strategy, including environmental, social and governance risk factors;

2. (2)

   the firm’s culture and values; and

3. (3)

   the long-term effects of the investment decisions taken.

1. (1)

   1Each firm should assess the most appropriate frequency for the periodic reviews referred to in SYSC 19G.3.1R, taking into account all relevant factors.

2. (2)

   The development and review of the remuneration policy should be supported by the control functions, including (where they exist) risk management, compliance, internal audit and human resources, and by business units.

3. (3)

   The processes and decision-making around the development, review and amendment of remuneration policies and practices are subject to the general record-keeping requirements set out in SYSC 9.

1. (1)

   1The FCA would expect the central and independent internal review to assess whether the implementation of the remuneration policies and practices:

   1. (a)

      results in remuneration awards that are in line with the firm’s business strategy;

   2. (b)

      reflects the risk profile, long-term objectives and other relevant goals of the firm; and

   3. (c)

      complies with all relevant legal requirements.

2. (2)

   A non-SNI MIFIDPRU investment firm may outsource part or all of the independent review in SYSC 19G.3.4R. The management body in its supervisory function remains responsible for ensuring the review is carried out and any necessary follow up actions are taken.

3. (3)

   A non-SNI MIFIDPRU investment firm should document appropriately the results of the review and the actions taken to remedy any findings.

1 SYSC 19G.3.6R and SYSC 19G.3.7R are designed to manage the conflicts of interest which may arise if other business areas had undue influence over the remuneration of staff in control functions. Conflicts of interest can easily arise when staff members are involved in the determination of remuneration for their own business area. Where these could arise, they need to be managed by having in place independent control functions (in particular risk management, compliance and human resources functions).

1. (1)

   1The effect of SYSC 19G.4.1R is that all remuneration paid to a staff member must be clearly categorised as either fixed or variable remuneration.

2. (2)

   In allocating individual remuneration components to fixed or variable remuneration, it is the quality and purpose of the component that is decisive, not the label applied to it.

3. (3)

   The FCA considers that:

   1. (a)

      fixed remuneration:

      1. (i)

         should primarily reflect a staff member’s professional experience and organisational responsibility as set out in the staff member’s job description and terms of employment; and

      2. (ii)

         should be permanent, pre-determined, non-discretionary, non-revocable and not dependent on performance; and

   2. (b)

      variable remuneration:

      1. (i)

         should be based on performance or, in exceptional cases, other conditions;

      2. (ii)

         where based on performance, should reflect the long-term performance of the staff member as well as performance in excess of the staff member’s job description and terms of employment;2

      3. (iii)

         includes discretionary pension benefits; and2

      4. (iv)

         includes carried interest, as referred to in SYSC 19G.1.27R.2

1Returns made by staff on co-investment arrangements are shares in the profits as a pro rata return on an investment. The FCA does not usually consider these returns to be remuneration for the purposes of the MIFIDPRU Remuneration Code. However, the FCA considers these returns will be remuneration if the investment was made using a loan provided by the firm or by an undertaking in the same group as the firm, and if the loan was either not provided on commercial terms or had not been repaid in full by the date on which the returns on investment were paid.

1. (1)

   1In relation to remuneration received by a partner or a member in a limited liability partnership, the FCA’s view on how to categorise certain payments received by those individuals is as follows:

   1. (a)

      at the end of each year, the residual profits of a partnership or limited liability partnership are distributed among the partners or members. The level of ownership of each partner or member is reflected in the number of ownership shares they have. Residual profits are distributed according to the ownership shares, so are not linked to work or performance. In the FCA’s view, payments on this basis are not remuneration;

   2. (b)

      a partner or member may receive an amount fixed at the beginning of the year and subject only to the firm making a profit. These are often called fixed profit shares. A partner or member usually takes drawings on it throughout the year, often monthly. If profits at year-end are insufficient, drawings may have to be paid back. The FCA considers that drawings on fixed profit shares are usually fixed remuneration;

   3. (c)

      a partner or member may receive a discretionary share of the profit at the end of the year. These may be distributed to all partners or members but are usually dependent on the performance of the individual or their business unit. Awards may be at the discretion of the remuneration committee. The FCA considers that payments made on this basis are usually variable remuneration.

2. (2)

   A firm that is a partnership or limited liability partnership may use a benchmarking approach instead of, or in addition to, the approach in (1) to categorise payments made to partners or members of limited liability partnerships. For example, it may take into account:

   1. (a)

      the remuneration structures of other individuals performing similar tasks or working in similar businesses as the partner or member in question; or

   2. (b)

      the return expected in a similar investment context where the partner or member has invested in a fund or firm.

3. (3)

   Where a partner or member of a limited liability partnership works full-time for a firm the FCA would expect a reasonable portion of the partner’s or member’s profit share to be categorised as remuneration. Where a partner or member works part-time and receives less remuneration than a partner or member who works full-time, the FCA would expect a smaller proportion of the part-time partner or member’s profit share to be classed as remuneration.

1. (1)

   1When determining what is an appropriate balance and an appropriate ratio for the purposes of SYSC 19G.4.5R and SYSC 19G.4.6R respectively, a firm should consider all relevant factors, including:

   1. (a)

      the firm’s business activities and associated prudential and conduct risks; and

   2. (b)

      the role of the individual in the firm and, in the case of material risk takers, the impact that different categories of staff have on the risk profile of the non-SNI MIFIDPRU investment firm or of the assets it manages.

2. (2)

   It may be appropriate for some staff to receive only fixed remuneration. The FCA does not consider it would be an appropriate balance for any individual to receive only variable remuneration.

1A non-SNI MIFIDPRU investment firm may set different ratios for different categories of staff. For example, the FCA considers that it will usually be appropriate to set a lower ratio of variable to fixed remuneration for control functions than for the business units they control.

1Ratios may differ from one performance period to the next.

1When setting a ratio, a firm should consider all potential scenarios, including that a firm exceeds its financial objectives. The ratio should reflect the highest amount of variable remuneration that can be awarded in the most positive scenario. A firm should be satisfied that it has considered all relevant factors and should be able to explain its decision to the FCA if requested.

1As explained in SYSC 19.6.12R(2), where severance pay is payable a firm’sremuneration policy must set out the maximum level of severance pay or the criteria for determining the amount. Firms should therefore take these policies into account when establishing the ratio between variable and fixed remuneration in accordance with SYSC 19G.4.6R. The FCA accepts that in rare circumstances, for reasons that wouldn’t have been clear to a firm when setting its remuneration policy, a firm may become legally obliged to pay a higher amount of severance pay, for example as a result of legal proceedings. In these situations, SYSC 19G.4.11 states that the difference between the maximum severance pay permitted under the firm’sremuneration policy and the higher amount the firm is legally obliged to pay may be excluded from an assessment of whether an award of variable remuneration is consistent with the ratio set in accordance with SYSC 19G.4.6R.

1The FCA considers the following are key indicators that the professional activities of a staff member (X) have a material impact on the risk profile of the firm or of the assets that the firm manages for the purposes of SYSC 19G.5.1R:

1. (1)

   there is no sufficiently senior and experienced material risk taker who supervises X on a day-to-day basis or to whom X reports;

2. (2)

   X is responsible for key strategic decisions; and

3. (3)

   X is responsible for significant revenue, material assets under management or for approving transactions.

1The FCA expects individuals in the following roles would usually be categorised as material risk takers:

1. (1)

   in relation to portfolio management business, heads of key areas including equities, fixed income, alternatives, private equity;

2. (2)

   heads of investment research;

3. (3)

   individuals responsible for a high proportion of revenue;

4. (4)

   senior advisors where they can exert key strategic influence;

5. (5)

   chief market strategists, where media profile is linked to reputational risk and risk to market integrity;

6. (6)

   heads of a trading or broking desk; and

7. (7)

   all individuals with responsibility for information technology, information security and outsourcing where there is not a single person with responsibility for all three areas. For example, if there is a chief operating officer and a chief information technology officer who are both equally senior and have shared responsibility for these areas, then both should be identified as material risk takers.

1. (1)

   1A firm should update its assessment under SYSC 19G.5.2R as necessary throughout the year.

2. (2)

   It is important that firms consider all types of roles that may have a material impact on the firm’s risk profile or on the assets it manages. The categories of staff referred to in SYSC 19G.5.3R are intended to be a starting point only. A firm should develop its own additional criteria to identify further individuals based on the specific types of activities and risks relevant to the firm.

3. (3)

   In identifying its material risk takers, a firm should consider all types of risks involved in its professional activities. These may include prudential, operational, market, conduct and reputational risks.

4. (4)

   The decisive factor when identifying material risk takers is not the name of the function or role, but the authority and responsibility held by the individual.

1It may be helpful for the UK parent entity to coordinate the process for identifying material risk takers across the group entities.

1. (1)

   1SYSC 19G.5.9R applies only to material risk takers of non-SNI MIFIDPRU investment firms that do not fall within SYSC 19G.1.1R(2).

2. (2)

   A non-SNI MIFIDPRU investment firm not falling within SYSC 19G.1.1R(2) should therefore assess whether staff members are material risk takers before applying the thresholds in SYSC 19G.5.9R.

3. (3)

   As the provisions listed in SYSC 19G.5.9R(2) don’t apply on a consolidated basis (see 19G.1.18R(4)(b)), the exemption for individuals in SYSC 19G.5.9R(1) will not be relevant on a consolidated basis.

1. (1)

   1An individual may become a material risk taker at any point during the firm’s performance period, either by changing role within the firm or by joining the firm.

2. (2)

   The effect of SYSC 19G.5.11R is illustrated by the following example:

   An individual (‘X’), becomes a material risk taker 6 months into the firm’s performance period. X receives annual fixed remuneration of £900,000. This means X will receive £450,000 for the 6 months of the performance period for which X is a material risk taker. X receives variable remuneration of £100,000 in respect of the first 6 months. X falls below the thresholds in SYSC 19G.5.9R because X’s variable remuneration of £100,000 is:

   1. (a)

      less than the £167,000 threshold in SYSC 19G.5.9R(1)(a)2, and

   2. (b)

      less than one-third of the £450,000 fixed remuneration received (which would be £150,000) for the purposes of SYSC 19G.5.9R(1)(b)2.

1The FCA considers it good practice for a firm to consider whether applying any of the rules applicable to material risk takers to other members of staff would contribute to sound risk management or a healthy firm culture.

1An example of where it may be justifiable to pay variable remuneration to a member of the management body of a MIFIDPRU investment firm that benefits from exceptional government intervention is where that person was not in office at the time the exceptional government intervention was first required.

1. (1)

   1For some firms it may be appropriate to give equal weight to financial and non-financial criteria for the purposes of SYSC 19G.6.5R. For other firms a slightly different split may be appropriate.

2. (2)

   Non-financial criteria under SYSC 19G.6.5R should:

   1. (a)

      form a significant part of the performance assessment process;

   2. (b)

      override financial criteria, where appropriate;

   3. (c)

      include metrics on conduct, which should make up a substantial portion of the non-financial criteria; and

   4. (d)

      include how far the individual adheres to effective risk management and complies with relevant regulatory requirements.

3. (3)

   Examples of non-financial criteria under SYSC 19G.6.5R include:

   1. (a)

      measures relating to building and maintaining positive customer relationships and outcomes, such as positive customer feedback;

   2. (b)

      performance in line with firm strategy or values, for example by displaying leadership, teamwork or creativity;

   3. (c)

      adherence to the firm’s risk management and compliance policies;

   4. (d)

      achieving targets relating to:

      1. (i)

         environmental, social and governance factors; and

      2. (ii)

         diversity and inclusion.

4. (4)

   A firm should ensure that when it assesses individual performance, the assessment process and any variable remuneration awarded in accordance with SYSC 19G.6.4R does not discriminate on the basis of the protected characteristics of an individual in accordance with the Equality Act 2010.

1. (1)

   1Guaranteed variable remuneration is sometimes referred to as a ‘sign-on bonus’ or ‘golden handshake’.

2. (2)

   Guaranteed variable remuneration can be used as a way to compensate new staff members where they have lost the opportunity to receive variable remuneration by leaving their previous employment during the performance period. These awards may be called ‘lost opportunity bonuses’.

3. (3)

   The FCA expects non-SNI MIFIDPRU investment firms to award guaranteed remuneration only rarely and not as common practice.

1. (1)

   1Retention awards are bonuses which are dependent on an individual remaining in a role until a defined event or for a set period of time. For example, retention bonuses can be used under restructurings, in wind-down or in the context of specific projects within a firm.

2. (2)

   The payment of a retention award may be made dependent on the material risk taker meeting certain performance criteria that have been defined in advance.

3. (3)

   The FCA expects non-SNI MIFIDPRU investment firms to make retention awards to material risk takers only rarely and not as common practice.

1Buy-out awards involve a firm compensating a new staff member, or ‘buying out’ their previous contract with another employer, where the deferred variable remuneration of the staff member was reduced, revoked or cancelled by the previous employer. This could be because they terminated their contract or because the individual has to pay back some money, for example where the employer has paid for a training course or qualification for the individual that was attached to a retention clause.

1. (1)

   1Where a MIFIDPRU investment firm is unable to issue eligible instruments, the firm may apply to the FCA for a modification under section 138A of the Act to permit the firm to use alternative arrangements. The firm will need to provide a detailed explanation in its application of the alternative arrangements it is proposing to operate.

2. (2)

   The FCA may grant a modification under section 138A of the Act for these purposes only where it is satisfied that:

   1. (a)

      compliance by the firm with the requirement to issue variable remuneration in eligible instruments would be unduly burdensome or would not achieve the purpose for which the rules were made; and

   2. (b)

      granting the modification would not adversely affect the advancement of any of the FCA’s objectives.

3. (3)

   As part of its assessment of whether the modification would adversely affect the advancement of its objectives, the FCA will consider whether the proposed alternative arrangements for variable remuneration achieve similar outcomes to the standard requirements applicable to eligible instruments. In particular, the FCA will normally consider the following non-exhaustive list of factors:

   1. (a)

      whether the proposed alternative arrangement ensures suitable alignment between the interests of the staff member and the long-term interests of the firm, its clients and creditors;

   2. (b)

      whether the proposed alternative arrangement is subject to a retention policy that is of sufficient length to align the incentives of the staff member with the long-term interests of the firm, its clients and creditors;

   3. (c)

      whether the proposed alternative arrangement is clear and transparent to the staff member and contains sufficient detail on the applicable conditions;

   4. (d)

      whether the firm will ensure that any amounts that are subject to deferral and retention arrangements cannot be accessed, transferred or redeemed by the staff member during the deferral and retention periods;

   5. (e)

      whether the proposed alternative arrangement would facilitate the appropriate application of malus and clawback requirements;

   6. (f)

      whether the proposed alternative arrangements adequately ensure that the value of the variable remuneration received does not increase during the deferral period through distributions or other payments on the instrument; and

   7. (g)

      where the proposed alternative arrangements allow for predetermined changes of the value received as variable remuneration during deferral and retention periods, based on the performance of the firm or the managed assets, whether the following conditions would be met:

      1. (i)

         the change of the value is based on predefined performance indicators that are based on the credit quality of the firm or the performance of the managed assets;

      2. (ii)

         where deferral and retention must be applied, value changes are calculated at least annually and at the end of the retention period;

      3. (iii)

         the rate of possible positive and negative value changes is equally based on the level of positive or negative credit quality changes or performance measured;

      4. (iv)

         where the value change under (i) is based on the performance of assets managed, the percentage of value change should be limited to the percentage of value change of the managed assets;

      5. (v)

         where the value change under (i) is based on the credit quality of the firm, the percentage of value change should be limited to the percentage of the annual total gross revenue in relation to the firm’s total own funds.

4. (4)

   If a firm cannot issue eligible instruments because of its legal structure, that is likely to be a reason for the FCA to conclude that requiring the firm to comply with SYSC 19G.6.19R would not achieve the purpose for which that rule was made.

1. (1)

   1In considering what is an appropriate retention policy for the purposes of SYSC 19G.6.22R, a firm should consider at least the following:

   1. (a)

      the length of the deferral period referred to in SYSC 19G.6.24R(1);

   2. (b)

      the length of the firm’s business cycle;

   3. (c)

      the types of risks relevant to the role of the staff member; and

   4. (d)

      how long it could take for the risks underlying the staff member’s performance to crystallise.

2. (2)

   The greater the impact of the material risk taker on the risk profile of the firm and of the assets managed, the longer the retention period should be. Different retention periods for different material risk takers may be appropriate, particularly where the applicable deferral periods differ.

1. (1)

   1Where appropriate, a firm should tailor the proportion of deferred variable remuneration, the deferral period and the speed of vesting in different ways for different categories of material risk taker.

2. (2)

   The FCA considers that it may be appropriate for the most senior material risk takers at a firm (for example members of the management body), to be subject to a deferral period longer than the 3-year minimum.

3. (3)

   It may be appropriate for firms to apply different proportions of deferred variable remuneration, deferral periods or vesting arrangements to the portion of variable remuneration paid out in cash and the portion paid out in instruments.

4. (4)

   In the FCA’s view, the higher the amount of the variable remuneration, and the higher the ratio of variable to fixed remuneration, the more appropriate it is likely to be to defer a greater proportion of the variable remuneration.

5. (5)

   In certain circumstances variable remuneration below £500,000 may still be considered ‘particularly high’ and so subject to 60% deferral. A firm should take into account the average remuneration at the firm, the ratio of the variable to fixed remuneration of the material risk taker, and the amount of variable remuneration compared to that of other staff at the firm.

6. (6)

   After the first deferred portion of the variable remuneration vests in accordance with SYSC 19G.6.24R(4), the FCA does not expect vesting to take place more often than once a year.

1The FCA considers it good practice for the deferred portion to contain a higher proportion of instruments than the non-deferred portion.

1. (1)

   1The effect of SYSC 19G.6.31R(1) is that (save in the circumstances explained in (2)) a non-SNI MIFIDPRU investment firm must include in its remuneration policy the possibility of applying in-year adjustments, malus and clawback to the variable remuneration of its material risk takers. Where performance adjustment is required, the appropriate tool or tools (in-year adjustments, malus or clawback) should then be applied.

2. (2)

   A non-SNI MIFIDPRU investment firm that is not required by SYSC 19G.6.24R to apply deferral will not be able to apply malus, so should foresee the use of in-year adjustments and clawback arrangements only. Alternatively, the firm may choose to use deferral, which would enable the use of malus arrangements in addition to in-year adjustments and clawback.

3. (3)

   A non-SNI MIFIDPRU investment firm should ensure that the malus and clawback periods it sets and applies allow sufficient time for any potential risks to crystallise. This may mean that different periods are set for different categories of material risk takers.

4. (4)

   In setting appropriate malus and clawback periods, a non-SNI MIFIDPRU investment firm should take into account all relevant factors, including:

   1. (a)

      the nature of the material risk taker’s activities;

   2. (b)

      the material risk taker’s impact on the risk profile of the firm or of the assets it manages; and

   3. (c)

      the length of the business cycle that is relevant for the material risk taker’s role.

5. (5)

   For a non-SNI MIFIDPRU investment firm that satisfies the conditions in SYSC 19G.1.1R(2)(a) or (b), the FCA considers that 3 years will generally be an appropriate starting point for the firm’s consideration of the appropriate clawback period.

6. (6)

   The FCA’s ‘General guidance on the application of ex-post risk adjustment to variable remuneration’ provides further detail of the FCA’s expectations on firms’ use of malus and clawback arrangements.

1. (1)

   1In the FCA’s view, malus should be applied when, as a minimum:

   1. (a)

      there is reasonable evidence of staff member misbehaviour or material error;

   2. (b)

      the firm or the relevant business unit suffers a material downturn in its financial performance; or

   3. (c)

      the firm or the relevant business unit suffers a material failure of risk management.

2. (2)

   In the FCA’s view, clawback should, in particular, be applied in cases of fraud or other conduct with intent or severe negligence which led to significant losses.

1Actions a firm may take under SYSC 19G.6.36R include requesting an undertaking or declaration from its material risk takers and implementing policies regarding dealing in financial instruments.

1. (1)

   1MIFIDPRU 7.3.3R(1) requires a non-SNI MIFIDPRU investment firm to establish a remuneration committee, unless MIFIDPRU 7.3.3R(2) applies.

2. (2)

   The FCA encourages non-SNI MIFIDPRU investment firms that are not required to establish a remuneration committee under MIFIDPRU 7.3.3R(1) to consider whether establishing and maintaining a remuneration committee would contribute to the better alignment of risk and individual reward across the firm.