The new UK Investment Firms Prudential Regime (“IFPR”) came into force on 1 January 2022 and applies to UK investment firms authorised under the Markets in Financial Instruments Directive (“MiFID”) as it is applied in the UK post-Brexit. This includes previous “BIPRU” firms and “Exempt CAD” firms, as well as alternative investment fund managers (“AIFMs”) that have MiFID top-up permissions (known as collective portfolio management investment firms (“CPMI”)).
Article 3 exempt firms are not affected by the IFPR if they do not form part of an investment group and have not opted into MiFID. They remain on Chapter 13 of IPRU-INV.
The IFPR introduces new regulatory capital requirements for firms within its scope and, among other things, new remuneration, reporting and disclosure requirements. You can read our previous article here. Below, we answer some queries around a firm’s Remuneration Policy Statement (RPS).
Must all IFPR affected firms, including SNIs have a RPS?
SNI firms are only required to have in place “basic remuneration requirements”, although they can choose to have greater requirements in place, if they want to. Otherwise, all firms do need to have a remuneration policy.
There are some key principles which apply to the firm’s remuneration policy i.e. gender neutrality. Furthermore, the firms remuneration policy should be aligned to the business strategy, objectives and long-term interests of the firm. This should be consistent with areas such as the firm’s risk appetite and strategy, including environmental, social and governance risk factors.
Fixed and variable remuneration
Firms should have a remuneration policy in place which clearly states the difference between fixed and variable remuneration, outlining when the two separate elements apply. The fixed and variable elements should be appropriately balanced.
Financial and non-financial criteria
Firms need to take into account financial and non-financial criteria when assessing performance of staff. The FCA have given some examples of non-financial criteria such as achieving targets relating to environmental, governance and social factors and/or diversity and inclusion etc.
Restrictions on variable remuneration
Firms must have a sound capital base and they will not be expected / allowed to award variable remuneration if this would be adversely affected.
The key principles here include areas such as governance and oversight of remuneration. The FCA stated its intention to issue some “Remuneration Policy Statements templates” on its website for firms to use to outline whether or not their practices are compliant with the applicable rules / the MIFIDPRU Remuneration Code.
The FCA’s latest IFPR update includes a link to a template for the Remuneration Policy Statement.
SNIs do not need to complete all parts of the template, as is made clear by the template guidance notes.