Our remuneration rules set out the standards that certain firms must meet when setting pay and bonuses for staff. Learn about the main requirements and who they apply to, and find out more about sales incentives.
Remuneration forms part of the culture and governance priority, as set out in our Business Plan. As a key driver of behaviour, remuneration of senior and risk-taking staff is an important area of focus for us, to make sure that risk and reward are aligned in firms we regulate through our Remuneration Codes (the Codes).
While our remuneration rules only apply to specific groups of firms, remuneration is a key driver of behaviour for all firms and individuals. Implementing appropriate remuneration policies and practices helps to ensure appropriate outcomes and reduces the likelihood of harm.
The aim of the Codes is to:
- ensure greater alignment between risk and individual reward
- discourage excessive risk taking and short-termism
- encourage more effective risk management
- support positive behaviours and a strong and appropriate conduct culture within firms
This ensures that our supervision of remuneration is in line with our Mission, by identifying harm (actual or potential) that firms’ remuneration policies and practices may cause, and by acting in the public interest.
Firms should be able to demonstrate how their remuneration practices lead to appropriate outcomes, and show the effectiveness of their governance arrangements in identifying, managing and mitigating the risk of harm that inappropriate incentives may cause.
The Remuneration Codes are tailored to different types of firm:
- SYSC 19A – IFPRU Remuneration Code
- SYSC 19B – AIFM Remuneration Code
- SYSC 19C – BIPRU Remuneration Code
- SYSC 19D – Dual-regulated firms Remuneration Code
- SYSC 19E – UCITS Remuneration Code
- SYSC 19G - MIFIDPRU Remuneration Code
In 2018, we introduced SYSC 19F, which implemented MiFID II requirements on staff incentives and the remuneration of sales staff and advisers. It aims to make sure that sales staff and advisers are not remunerated in a way that creates incentives for staff to sell products inappropriately.
Firms must not remunerate or assess the performance of staff in a way that conflicts with their duty to act in the best interest of their client.
Remuneration requirements applying to your firm
The remuneration requirements apply to more than 7,000 firms, including:
- building societies
- large full-scope UK alternative investment fund managers
- investment firms in scope of the Capital Requirements Directive (CRD) IV, such as broker-dealers, investment managers, corporate finance, private equity and venture capital firms and operators of multilateral trading facilities
- management companies of undertakings in collective investments in transferrable securities (UCITS)
- common platform firms (excluding collective investment schemes)
- MiFID optional exemption firms (firms that are subject to exempt investment firms for the purpose of regulation 8 of the MiFI Regulations, the optional exemption in article 3 of MiFID, eg financial advisers, corporate finance firms and venture capitalist firms operating in the UK)
- third country firms (third country investment firms and UK branches of non-UK banks) in relation to activities carried on from an establishment based in the UK
While the requirements don't apply to all types of firms we regulate, appropriate remuneration practices are relevant for sound and effective risk management at all firms.
All firms subject to the Codes must make sure their remuneration policies and practices are consistent with and promote sound and effective risk management.
This includes the following:
- Deferring a certain proportion of relevant bonuses over a number of years – including greater proportions and longer periods for the most senior and highly paid staff.
- Awarding a certain proportion of a bonus in shares, share-linked instruments or other equivalent non-cash instruments (or units of shares of the alternative investment fund for firms subject to SYSC 19B or units or shares of the UCITS, equivalent ownership interests in the UCITS, share-linked instruments relating to the UCITS concerned, or equivalent non-cash instruments with equally effective incentives). These shares or instruments should be subject to an appropriate retention period.
- Ensure guarantees are only given in exceptional circumstances to new hires for the first year of service.
- Ensure senior management adopts and periodically reviews the general principles of the firm’s remuneration policy and ensure its implementation as well as disclosure of details of their firm’s remuneration policies at least annually.
- Variable remuneration is risk-adjusted and ensures performance is assessed with respect to financial and non-financial factors and is based on the overall performance of the firm, relevant business unit and the individual concerned.
- Ensure that any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified on the basis of the overall performance of the firm, the relevant business unit and the individual concerned.
All firms subject to SYSC 19F must ensure that their remuneration policies and practices:
- do not remunerate or assess the performance of staff in a way that conflicts with their duty to act in the best interests of the firm’s clients
- ensure that client interests and the right to be treated fairly are not impaired by the remuneration practices adopted by the firm in the short, medium or long term
We have adopted a proportionate approach to implementing the Codes. Some of the features of the Codes apply to a firm as a whole, while other requirements, such as those on the structure of awards, apply mainly to material risk takers (MRTs), also referred to as Remuneration Code staff or identified staff. Examples of such individuals include:
- senior management
- risk takers and staff in control functions
- those earning in the same remuneration bracket as the above, whose professional activities have a material impact on the firm’s risk profile
The approach set out in our general guidance on proportionality also allows firms to implement the Codes in a way suitable for their size, internal organisation and the nature, scope and complexity of their activities.
Firms should note that SYSC 19F, unlike the Codes, doesn't contain an equivalent concept of proportionality. This means that SYSC 19F applies in its entirety to all firms within scope.
SYSC 19F focuses on remuneration and performance management of sales staff. Our overarching approach to incentives applies to the majority of firms we regulate and now incorporates SYSC 19F.
There are also EBA Guidelines on sales incentives, which have applied since 2018. These concern remuneration paid to staff employed by credit institutions, creditors, credit intermediaries, payment institutions and electronic money institutions when providing deposits, payment accounts, payment services, electronic money, residential mortgages and other forms of credit to consumers.
In Brexit: our approach to EU non-legislative materials, we explain how we expect firms to continue to apply guidelines to the extent that they remain relevant.
We have conducted supervisory work and industry engagement where we looked at the risks to customers from financial incentives of staff or representatives dealing directly with retail customers.
Following this work we published final guidance in January 2013 (on financial incentives) and July 2015 (on performance management) to assist firms in mitigating the risks to consumers that could arise through their incentive schemes and performance management of staff. We also conducted follow up thematic work into financial incentives which assessed whether firms are now managing the risks to consumers.
We have published a rule on how consumer credit firms should manage risks arising from the way they pay their staff and manage their performance. We have also published non-Handbook guidance to help firms identify features of their incentive or performance management that might harm consumers, through mis-selling or other poor conduct. This guidance also suggests they can manage these risks more effectively.
More information on performance management.
More information on financial incentives.
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