Financial Conduct Authority
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FSA publishes consultation paper on remuneration

The Financial Services Authority (FSA) yesterday published a consultation paper (CP) which formally consults on whether to incorporate its Code of practice on remuneration into the Handbook and its application to large banks and broker dealers.

The Code has a general requirement that ‘a firm must establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management’. This would become a Handbook rule. The CP will also propose that the Code’s remaining 10 principles are put into the Handbook to help guide firms on the evidence the FSA will focus on when assessing compliance.

The Code’s rules and evidential provisions would apply to certain FSA authorised large banks and broker dealers, defined as follows:

  • FSA authorised banks and building societies  which meet either or both of these criteria;

    • consolidated regulatory capital in the UK banking entities in excess of £1 billion
    • Part of an international financial group whose regulatory capital is in excess of £20 billion or the equivalent amount in another currency
  • FSA authorised investment firms (BIPRU ‘730k’ firms) which meet either or both of these criteria
    • Consolidated regulatory capital in the UK authorised entity in excess of £750 million or its equivalent amount in a foreign currency.
    • Part of an international financial group whose total shareholder equity is in excess of £5 billion or its equivalent amount in a foreign currency.

These criteria will extend the Code to about 45 of the largest banks, building societies and broker dealers operating in the UK.

The CP notes that in order to be effective, policies on remuneration should be implemented globally and in a consistent manner, and in deciding whether to implement our plans we will take into account whether we think there is satisfactory alignment of implementation plans by authorities in the major financial centres.

The CP is also inviting discussion on the idea that the Code should be applied to all other FSA-authorised firms.

The consulting period on implementation of the Code for larger banks and broker dealers will run for two months, until 18 May.  The period for discussion and feedback on the idea of extending the Code to other firms regulated by the FSA will run until 18 June.

Notes for editors

  1. The consultation paper
  2. The draft Code was first published on 26 February, but has since undergone some significant revisions.  It is available in Annex 2 of the consultation paper.
  3. This would exclude UK branches of EEA firms since responsibility for systems and controls is reserved to home competent authorities, but would include the overseas branches of UK firms (both EEA and non-EEA)
  4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness

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