SYSC 19D Dual-regulated firms Remuneration Code

1. (1) For firms subject to the dual-regulated firms Remuneration Code, the PRA is responsible for remuneration requirements from a prudential perspective. The FCA is responsible for remuneration requirements from a conduct perspective. 

2. (2) The aim of the dual-regulated firms Remuneration Code is to ensure that firms have risk-focused remuneration policies, which are consistent with and promote effective risk management, and do not expose them to excessive risk. It expands upon the general organisational requirements in SYSC 4. 

3. (3) Historically, the FCA and the PRA had 2 parallel sourcebooks containing rules on remuneration. Firms subject to the dual-regulated firms Remuneration Code were required to comply with both sets of rules. The FCA has now simplified its rules for firms subject to the dual-regulated firms Remuneration Code by cross-referring to the PRA Remuneration Rules. All cross-references to the PRA Remuneration Rules are to those rules ‘as amended from time to time’. This means that where the PRA's rules change, so do the FCA's. 

4. (4) Where the FCA's rules modify the PRA Remuneration Rules, or where the FCA wishes to explain how the dual-regulated firms Remuneration Code is to be applied, those rules and guidance remain in SYSC 19D.

1. (1) The effect of SYSC 19D.1A.1R is that the requirements of the PRA Remuneration Rules apply to a firm subject to the dual-regulated firms Remuneration Code as if they were FCA rules. The FCA will supervise and enforce these rules, as if they were FCA rules. 

2. (2) Firms subject to the dual-regulated firms Remuneration Code must still apply to both the FCA and the PRA to waive or modify a rule. However, they will now (save in relation to the rules and guidance in SYSC 19D.2A) be able to propose a waiver of or modifications to the same rule, instead of proposing changes to 2 different PRA and FCA versions of the rules.

1. (1) This section contains rules which are specific to the FCA. 

2. (2) This section also provides guidance on how the FCA expects firms to comply with the dual-regulated firms Remuneration Code.

The FCA's policy on individual guidance is set out in SUP 9. Firms should note, in particular, the policy on what the FCA considers to be a reasonable request for guidance (see SUP 9.2.5G). For example, where a firm is seeking guidance on a proposed remuneration structure, the FCA will expect the firm to provide a detailed analysis of how the structure complies with the dual-regulated firms Remuneration Code.

A firm must ensure that its remuneration policy is a gender-neutral remuneration policy and that the practices referred to in rule 6.1 of the PRA Remuneration Rules are gender-neutral.

1. (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 should ensure that its remuneration policy complies with the Equality Act 2010.

2. (2) Firms should ensure that, when they assess individual performance, the assessment process and any variable remuneration awarded in accordance with rule 15.4 of the PRA Remuneration Rules does not discriminate on the basis of the protected characteristics of an individual.

In rule 3.4 of the PRA Remuneration Rules, reference to ‘the Record-Keeping Part’ should be read as instead referring to ‘the general record-keeping requirements (SYSC 9)’. 

1. (1) The guidance provision at (2) is relevant to rule 10.1 of the PRA Remuneration Rules.

2. (2) The FCA considers that it would normally be appropriate for the ban on paying variable remuneration to members of the management body of a firm that benefits from exceptional government intervention to apply only to members of the management body who were in office at the time that the intervention was required.

1. (1) The guidance provisions in (2) are relevant to rule 11.1 of the PRA Remuneration Rules.

2. (2) The FCA considers that: 

   1. (a) a firm should apply qualitative judgements and common sense in the final decision about the performance-related components of variable remuneration pools. This reflects the importance of risk adjustment in measuring performance, and the importance within that process of applying judgement and common sense;

   2. (b) good practice is demonstrated by those firms who provide a quantitative reference or starting point that explicitly includes risk-adjusted metrics, before applying more discretionary factors. Common metrics include those based on economic profit or economic capital. Whichever technique is chosen, the full range of future risks should be covered, including non-financial risks such as reputation, conduct, client outcomes, values and strategy;

   3. (c) a firm should be able to provide the FCA with details of all adjustments that the firm has made, whether through application of formulae or the exercise of discretion. This will enable the FCA to consider whether the firm's risk adjustment framework is sufficiently robust. Where discretion has been applied, the firm should be able to provide a clear explanation for, and quantification of, such adjustments; and

   4. (d) a firm's risk management function should validate and assess risk-adjustment techniques, and attend meetings of the governing body or remuneration committee for this purpose.

In rule 15.20A(2) of the PRA Remuneration Rules, references to ‘a relevant material risk taker who performs a PRAsenior management function’ should be read as if they instead referred to ‘a relevant material risk taker who performs an FCA-designated senior management function’.

1. (1) SYSC 19D Annex 1 makes provision about voiding and recovery.

2. (2) The voiding provisions in SYSC 19D Annex 1 apply to the rules listed in rule 16.1 of the PRA Remuneration Rules, save in the circumstances specified in rules 16.2 to 16.8 of the PRA Remuneration Rules.

1. (1) Section 137H of the Act enables the FCA to make rules that render void any provision of an agreement that contravenes specified prohibitions, and that provide for the recovery of any payment made, or other property transferred, in pursuance of such a provision.

2. (2) SYSC 19D.2A.12R explains the prohibitions that are subject to these voiding arrangements, and SYSC 19D Annex 1 explains how those voiding arrangements work.