One Code To Rule Them All – FCA Proposes Remuneration Reforms For Solo-Regulated Firms

After a few years of relative calm following the introduction of the MIFIDPRU Remuneration Code, the Financial Conduct Authority (FCA) has published a consultation on proposed reforms to the regulation of remuneration for solo-regulated firms, being alternative investment fund managers (AIFMs), UCITS management companies and MIFIDPRU investment firms.

The proposed reforms are intended to introduce a simpler, clearer and more proportionate framework for solo-regulated firms, reducing the regulatory burden where prescriptive rules are not needed to achieve good outcomes whilst maintaining safeguards.   

Key proposals

• Consolidated remuneration code: the FCA proposes to replace the 3 existing remuneration codes with a single consolidated code for in-scope solo-regulated firms. This means that the existing AIFM Remuneration Code (SYSC 19B), UCITS Remuneration Code (SYSC 19E) and MIFIDPRU Remuneration Code (SYSC 19G) would be replaced with a new code for in-scope solo-regulated firms (SYSC 19AA).
• Transition to an outcomes-focused approach: the FCA proposals reflect a general move away from prescriptive rules towards a greater focus on the desired outcomes of promoting good conduct, healthy culture and effective governance, aligning remuneration with the interests of clients, funds and investors, and reflecting individual risks created by firms and their staff.
• Revised scope of individuals caught by the rules: the new code would apply to individuals at two levels: all staff, to whom ‘general remuneration requirements’ would apply; and material risk takers (MRTs), to whom additional ‘remuneration principles’ would apply. 

  The general remuneration requirements would require firms to establish, implement and maintain remuneration policies and practices that apply to all staff and that comply with certain prescribed outcomes, including those noted above as well as appropriate governance and oversight outcomes. 

  The remuneration principles would require firms to apply additional requirements to MRTs, including around the balance between fixed and variable remuneration, the assessment of performance, deferral, performance adjustment, guaranteed variable remuneration and severance, similar to the existing codes (although see below). 

  The FCA also proposes a narrower definition of ‘material risk taker’, being those staff members at an in-scope solo-regulated firm whose professional activities or remuneration incentives have a material impact on the firm’s conduct in relation to its clients and investors, on the interests of investors, the AIFs or the UCITS schemes, or on the firm’s compliance with its regulatory obligations. 

  A consequence of this change would be that some individuals who currently fall within the scope of certification pursuant to the Senior Managers and Certification Regime solely as MRTs would no longer be subject to annual certification, unless they also perform another certification function.

• Revised scope of firms caught by the rules: the FCA proposes that the new code would apply to: full-scope UK AIFMs initially, transitioning to medium and large UK AIFMs in line with the framework and definitions proposed in the FCA’s consultation on the broader AIFM regulatory regime; UK UCITS management companies; and all non-SNI MIFIDPRU investment firms.

  This means that all small and non-interconnected (SNI) MIFIDPRU investment firms would be removed from the remuneration requirements, and all non-SNI MIFIDPRU investment firms would be subject to the same requirements, instead of the tiered approach that currently applies (i.e. standard vs. extended).

• Scaled-back deferral requirements: the FCA proposes two alternative approaches to revising the deferral requirements for MRTs and has asked for views and evidence on both.

  The FCA’s preferred approach is to move towards an entirely principle-based deferral requirement whereby a firm’s management body would be responsible for determining whether it would be appropriate to include a policy on deferral for MRTs and, if so, how that should be structured. There would be no prescribed minimum deferral percentages, deferral periods or vesting schedules, holding periods or split between cash and financial instruments awarded. Instead, it would be for firms to determine what is appropriate, in line with the outcomes-focused approach. 

  For this option, the FCA would publish guidance setting out supervisory expectations and examples of good practice, and the proposed code includes a list of scenarios where the FCA considers that it may be appropriate to use deferred variable remuneration. 

  The alternative option would be to apply mandatory deferral to firms above specified thresholds, alongside a minimum deferral period. For any firm below the threshold, only the principles-based deferral approach set out above would apply. 

  If this option is applied, the FCA is considering aligning the relevant thresholds with those applied to PRA and FCA dual-regulated firms, or whether alternative metrics or thresholds would be more appropriate.

• Scaled-back performance adjustment requirements: the FCA proposes that performance adjustment mechanisms for MRTs, including malus and clawback requirements, should no longer be mandatory and, instead, a firm would need to determine whether and, if so, how such mechanisms should be used in order to meet the required outcomes.
• Scaled-back guaranteed variable remuneration restrictions: the FCA proposes that guaranteed variable remuneration would be permitted in the context of hiring a new MRT or compensating the MRT for remuneration forfeited on leaving the previous employment, provided that it is time-limited, does not create an ongoing entitlement to guaranteed variable remuneration, and is subject to appropriate adjustment, reduction or recovery. It is proposed that the previous requirements for guaranteed variable remuneration to be ‘exceptional’ and limited to the first year of engagement would be removed.
• Scaled-back governance requirements: the FCA proposes the removal of certain prescriptive governance and reporting requirements relating to remuneration, the mandatory requirement for firms to establish a remuneration committee, the requirement for firms to conduct a formal annual remuneration review, the MIF008 remuneration reporting template and related reporting requirement, and the remuneration disclosure requirements in MIFIDPRU 8.6.
• Revoked non-Handbook guidance: the FCA proposes to revoke non-Handbook guidance associated with the existing AIFM and MIFIDPRU remuneration regimes where it no longer supports the revised approach, including the general guidance on the AIFM remuneration code and the general guidance on ex-post risk adjustment to variable remuneration.

Timing

The consultation response deadline is 16 September 2026 and, subject to feedback received and final rules, the FCA anticipates that they will publish a policy statement in Q1 2027, with the reforms applying only to remuneration relating to performance periods beginning on or after the day following publication of the policy statement (subject to the transitional arrangements for AIFMs noted above). The FCA does not propose that the reforms can be applied retrospectively.

Tapestry comment

"These proposals are a significant and welcome attempt to make the remuneration framework for solo-regulated firms clearer, cleaner and more proportionate. A single consolidated code should make the rules easier to navigate, reduce duplication across the existing regimes and create scope for firms to take a more tailored approach to remuneration governance and incentive design.

For firms that are already compliant with the existing UK remuneration codes, the FCA has indicated that they should generally expect to remain compliant under the proposed new code. The real opportunity, therefore, is not simply to restate existing arrangements, but to consider whether current policies, processes and incentive structures can be simplified, scaled back or better aligned with the firm’s business, risk profile and culture.

That said, with greater regulatory flexibility comes greater responsibility. The removal of some of the existing prescriptive “guard rails” may reduce compliance burden and ongoing costs, but it also places more emphasis on firms’ management bodies to determine what is appropriate in their specific circumstances and to be able to justify that their approach delivers the outcomes expected by the FCA.

Impacted firms should use the consultation period to assess how the proposals may affect their remuneration policies and incentive plans, and to identify where a more streamlined and competitive approach may be possible while maintaining appropriate governance, oversight and alignment with clients’ and investors’ interests.”