As most Firms are now aware, on the 1st January 2022 the Investment Firms Prudential Regime (IFPR), came into force. The regime has introduced new remuneration rules which is now referred to as the ‘MIFIDPRU Remuneration Code’ (‘The Code’). The Code is applicable to all UK Investment Firms. The impact of The Code will vary depending on what prudential regime the Firm was previously under before IFPR and how they are classified now under IFPR. For example, for previous Exempt CAD firms The Code is likely to be a large change, and may be the first time that the Firm will be subject to remuneration requirements of this type.
Depending on the Firms classification under IFPR, they will need to apply basic, standard or extended remuneration requirements. All investment Firms will be expected to comply with the basic elements of the code, which include but is not limited to, having a remuneration policy that promotes sound and effective risk management, with a clear distinction between the criteria determining fixed and variable pay, and finding an ‘appropriate balance’ between those elements. For Non-SNI Firms they will be subject to some additional requirements under the standard elements of the Code, for example, the annual identification of material risk takers (‘MRT’s’), setting minimum malus and clawback periods and setting a ratio of fixed to variable remuneration for MRT’s. Finally, the extended code applies to the largest Non-SNI firms as well as the basic and standard requirements described above. Some of the requirements under the extended code include: setting up a remuneration committee, having a retention policy and deferring a proportion of variable remuneration.
Investment firm groups applying the Group Capital Test may apply basic, standard and extended remuneration requirements on an individual entity basis. Where prudential consolidation applies, the investment firm group must apply the basic and standard rules on an individual entity level and at a consolidated group level. The FCA has clarified that the extended code does not apply on a consolidated basis.
Some Firms may be subject to another UK remuneration code as well as MIFIDPRU e.g. AIFM or UCITS. Where this is the case, the investment Firm is required to apply whichever is the most stringent provision.
Disclosure Requirements
Firms are also expected to make certain disclosures with regards to their remuneration arrangements, these are divided into qualitative and quantitative disclosures. All investment Firms are required to disclose a summary of their approach to remuneration and a summary of the governance of the firm’s remuneration policies. In terms of qualitative disclosures, SNI firms are required to disclose only high-level information in relation to the levels of remuneration awarded whereas Non-SNI firms are required to provide more detailed information for example, information on the split of fixed and variable remuneration for senior management, MRT’s and other staff.
MIF008
As an additional requirement under IFPR, all Firms will be expected to complete a financial return on RegData which will be the MIF008 report. Within this report, Firms will need to provide information on their remuneration practices.
