FSA Remuneration Code

After much concern and consultation, the impact of the remuneration code for many asset managers and advisers is anticipated to be minimal, with many firms taking advantage of the proportionality measures available within the code.

On Friday 17 December, the FSA published its guidance on the Remuneration Code following on the CEBS guidance the week before. It would appear that there is a measure of proportionality for "Tier 4" firms which are defined as all limited licence and limited activity firms (including third country BIPRU firms with such permissions). Broadly speaking this will include those in the asset management industry which run agency type businesses and do not put their balance sheet at risk.

Many firms will need to consider their remuneration policies in light of the provisions.

The FSA has kept to the 1 January 2011 implementation date but there is a transitional period running for 6 months for businesses which are not currently in the regime. It is anticipated that firms will be focused on getting arrangements in place before the anticipated FSA reporting around mid-year.

The key provisions which can be neutralised for Tier 4 firms under the principle of proportionality are:

1. Establishment of a remuneration committee
2. Variable remuneration in capital instruments
3. Retention periods
4. Deferral periods
5. The ratio between fixed and variable remuneration (subject to conditions)

This is not to say that Tier 4 firms which opt to neutralise any or all of the above conditions do not have obligations under the Remuneration Code.

There will be a requirement to submit an "annual data return". This will set out aggregate data on the firm's remuneration policies and practices and certification that the firm’s remuneration policies are compliant with the Code. The first such return is expected to be filed during the second half of 2011 and should be based on 2010/11 remuneration awards. Clearly this requires firms to have considered the Code, consider which provisions should or should not apply based on the risk profile of the firm, and document the findings accordingly.

In addition, Tier 4 firms will be expected to prepare a Remuneration Policy Statement which records the firm’s self-assessment of compliance with the Code. Although Tier 4 firms are not required to have a specific remuneration committee there will be an equivalent body (probably already in place) which should review and approve this Statement annually to reflect any changes required based on a changing risk profile.

For wider commentary on the FSA remuneration Code, see The IMS Group newsletter here.