Remuneration reform shifts the burden to governance evidence

At a Glance

The FCA proposes replacing SYSC 19B, 19E and 19G with a single remuneration code for solo-regulated firms including AIFMs, UCITS managers and MIFIDPRU investment firms, aiming to reduce complexity while maintaining risk alignment.

The consultation reflects industry feedback that current remuneration rules impose disproportionate burdens, particularly for non-systemic firms. By consolidating three existing codes and moving towards outcomes-based governance, the FCA seeks to maintain conduct standards while allowing more flexibility in implementation.

Key proposals include optional performance adjustment mechanisms, simplified governance requirements, and two approaches to deferral arrangements - either principles-based or threshold-linked. The changes would revoke MIF008 reporting and MIFIDPRU 8.6 disclosures while maintaining core accountability expectations.

What the FCA Is Proposing

CP26/27

The FCA proposes consolidating SYSC 19B, SYSC 19E and SYSC 19G into one remuneration code, removing duplication while retaining governance, risk-alignment and client-interest outcomes. The consultation says feedback suggests the existing rules can impose unnecessary burden, particularly on firms that do not pose systemic risk. The FCA expects to publish a policy statement in Q1 2027, depending on consultation feedback.

Deferral Options

The consultation presents two approaches to variable pay deferral: a principles-based method allowing management body discretion on structures and durations, or a threshold-based system potentially aligned with PRA's £4bn/£20bn asset tiers. MEMA recommends that firms assess which approach better suits their investor time horizons and risk profiles while maintaining malus/clawback considerations.

Reporting Changes

The proposal would eliminate the MIF008 template and MIFIDPRU 8.6 disclosure requirements, reducing operational burdens for investment firms. Firms would still need to maintain remuneration records demonstrating policy effectiveness, but without standardised reporting formats.

Who Should Read This Consultation

The FCA identifies the following groups in its "Who this is for" section: Investment firms. Alternative investment fund managers. UCITS (Undertakings for Collective Investment in Transferable Securities) management companies. Firms in the same group as at least one investment firm, alternative investment fund manager or UCITS management company.

The FCA says the consultation may also interest Credit institutions (banks and building societies). Trade bodies and firms’ professional advisers. Consumers and consumer organisations to understand how firms remunerate their staff and align risk with reward. MEMA recommends using these categories to document relevance without treating consultation readership as the final scope of rules that have not yet been made.

Questions Firms Should Resolve

MEMA recommends that firms conduct a gap analysis between current remuneration frameworks and the proposed consolidated code, particularly around governance documentation. The removal of mandatory committee structures and annual reviews may reduce administrative burdens, but requires clear mapping of how existing controls will deliver equivalent oversight under more principles-based rules. For Remuneration: Solo-regulated firms’ rules reform, MEMA recommends testing the scope assessment against the firm's permissions, products, governance arrangements, legal entities and group relationships. Before committing implementation spend, owners should map Remuneration: Solo-regulated firms’ rules reform to policies, decision rights, data, systems and material third parties.

The remuneration proposals interact with the separate AIFM reform programme, and the sequencing of the two policy statements could affect the transition between categories. MEMA recommends tracking that dependency without assigning an unsupported publication date to the AIFM policy statement. The working paper should separate CP26/27 proposals from management assumptions and identify decisions that can wait for final rules. It should also identify the owner, evidence gap and governance trigger for revisiting each provisional conclusion.

Decisions Before the Consultation Closes

MEMA Assessment

The consultation raises fundamental questions about how firms balance flexibility with risk management in compensation structures. MEMA recommends that boards assess whether current deferral arrangements and performance adjustment mechanisms would remain effective under more principles-based rules, particularly for material risk takers. The proposals place greater emphasis on management body judgement, requiring clear documentation of how remuneration decisions align with long-term investor interests. MEMA's view is that the board should receive a concise decision paper on Remuneration: Solo-regulated firms’ rules reform, rather than a generic regulatory update.

With the potential removal of standardised reporting, firms need to determine what alternative evidence would demonstrate remuneration policy effectiveness to supervisors. The parallel AIFM reforms add a sequencing dependency. Boards should track the CP26/27 policy statement, which the FCA anticipates in Q1 2027, alongside the separate AIFM reform programme without assuming a publication date for the AIFM policy statement.

Source Evidence

Plain English Glossary

• SYSC - Senior Management Arrangements, Systems and Controls. FCA Handbook section covering governance, risk management, and operational control expectations.
• MIFIDPRU - Prudential sourcebook for MiFID Investment Firms. FCA prudential rules for investment firms covering capital, liquidity, and concentration risk.
• SMCR - Senior Managers and Certification Regime. Accountability framework requiring named senior managers, certified individuals, and conduct rules training.
• PRA - Prudential Regulation Authority. Bank of England body responsible for prudential supervision of banks, building societies, insurers, and major investment firms.
• CP - Consultation Paper. FCA publication setting out proposed rule changes and inviting feedback from industry and the public.

Disclaimer

This article is for general information only and does not constitute legal or regulatory advice. Firms should assess the application of regulatory requirements by reference to their permissions, products, customers and operating model.

How MEMA Can Help

MEMA can help firms translate regulatory change into practical controls, policies, monitoring activity and board evidence. Book a free scoping call to discuss what this development means for your firm.

MEMA can provide ongoing FCA compliance support for firms reviewing how the development affects their permissions, products and operating model.

For the wider individual-accountability context, see our guide to SMCR accountability and evidence.