The FCA has published Consultation Paper CP26/27, Remuneration: Solo-regulated firms' rules reform, proposing the most significant overhaul of remuneration requirements for UK asset managers since the introduction of the AIFM remuneration code.

The consultation forms part of the broader programme of UK asset management reform, sitting alongside the FCA's consultation on the future UK AIFM regime (CP26/28). Together, these reforms signal a shift away from the detailed, prescriptive requirements inherited from banking regulation and EU legislation towards a more proportionate UK framework.

For UK AIFMs, the proposals could significantly reduce the complexity of remuneration compliance while providing greater flexibility over remuneration structures, governance arrangements, and performance adjustment mechanisms, as well as removing several duplications.

Why is the FCA proposing change?

The current remuneration framework for many UK asset managers is built around three separate remuneration codes:

• The AIFM Remuneration Code (SYSC 19B).

• The UCITS Remuneration Code (SYSC 19E).

• The MIFIDPRU Remuneration Code (SYSC 19G).

These regimes originated from post-financial-crisis banking reforms and were subsequently extended to investment managers, despite the different nature of their business models, risks, and investor bases.

The FCA believes the current framework has become unnecessarily complex, particularly for firms that operate across multiple regulatory regimes. It also notes that recent remuneration reforms for dual-regulated firms have resulted in some solo-regulated firms being subject to more prescriptive requirements than larger, more systemically important institutions.

The regulator's objective is therefore to create a simpler, more proportionate framework that continues to promote sound governance and good investor outcomes while reducing unnecessary regulatory burden.

Replacing three remuneration codes with one

The central proposal is the replacement of the three existing remuneration codes with a single consolidated framework: SYSC 19AA (the Solo-Regulated Firms Remuneration Code).

The new code would apply across:

• UK AIFMs.

• UCITS management companies.

• Non-SNI MIFIDPRU investment firms.

The FCA has emphasised that firms with remuneration arrangements that already achieve the desired regulatory outcomes should not be required to undertake any significant changes. Firms that are compliant with existing UK or equivalent EU remuneration regimes are generally expected to remain compliant under the new framework.

Greater reliance on governance and judgement

Perhaps the most notable feature of the consultation is the move away from highly prescriptive remuneration rules towards an outcomes-focused framework.

A key feature of the proposed regime is the enhanced role of the management body. Rather than relying on detailed regulatory prescriptions, the FCA expects firms' governing bodies to take responsibility for designing, approving, and overseeing remuneration arrangements that are appropriate for the firm's business model, investor base, and risk profile. This reflects a broader shift across the FCA's reform programme towards accountability-based regulation, where firms are expected to demonstrate how governance processes support good outcomes rather than simply evidence compliance with prescriptive rules.

For AIFMs, this places greater emphasis on documenting the rationale behind remuneration decisions, including the identification of material risk takers, the use of deferral arrangements, and the application of performance adjustment mechanisms. While firms may gain flexibility, they may also face increased supervisory scrutiny regarding how those decisions have been reached and governed.

Under the proposed regime, remuneration requirements would apply at two levels:

All staff

Firms would be required to maintain remuneration policies and practices that:

• Promote good conduct and healthy culture.

• Align remuneration with the interests of clients, funds, and investors.

• Support sound risk management.

• Provide appropriate governance and oversight.

• Manage conflicts of interest.

Material Risk Takers (MRTs)

Additional remuneration principles would apply to staff whose professional activities or remuneration incentives have a material impact on any of the below:

• Client and investor outcomes.

• The interests of investors and funds.

• Compliance with regulatory obligations.

The FCA is also proposing a narrower MRT definition than under current rules, which could reduce the number of individuals subject to MRT-related obligations and potentially Senior Manager and Certification Regime (SM&CR) certification requirements.

Deferral requirements could change significantly

The FCA is consulting on two different approaches to deferral, with its preferred option representing a substantial departure from the current regime.

FCA preferred approach: principles-based deferral

Under this option:

• There would be no mandatory minimum deferral periods.

• Firms would not be required to apply fixed percentages of deferred remuneration.

• Mandatory instrument-based remuneration structures would fall away.

• The firm's management body would determine whether deferral is appropriate and, if so, how it should operate.

This would allow remuneration arrangements to be tailored to the firm's activities, investor time horizons, and risk profiles.

Alternative approach: threshold-based deferral

The FCA is also consulting on a more prescriptive alternative under which deferral requirements would continue to apply above specified size thresholds, potentially aligned to existing dual-regulated firm thresholds.

The consultation specifically seeks feedback on which approach market participants believe is more appropriate and will close on 16 September 2026.

Malus, clawback, and guaranteed variable remuneration

The consultation would retain the malus and clawback contract rules (which are used to take back or reduce bonus pay for employees) as important remuneration tools, but would remove the requirement to operate them.

Instead, firms would be expected to assess whether performance adjustment mechanisms are appropriate for their circumstances.

The FCA also proposes to permit guaranteed variable remuneration in limited circumstances, principally to do one of the below:

• To support recruitment.

• To compensate individuals for remuneration forfeited when leaving a previous employer.

Any such awards would need to be time-limited and remain subject to appropriate adjustment, reduction, or recovery provisions.

Governance requirements simplified

While the FCA is proposing to remove several prescriptive governance requirements, it is not proposing to reduce governance expectations. Instead, responsibility for remuneration oversight would move more explicitly to the firm's management body, which would be expected to approve, oversee, and periodically review remuneration policies and practices and ensure they remain aligned with the interests of clients, investors, and the firm's wider risk management framework.

In practice, many larger AIFMs may choose to retain existing remuneration committees even where these are no longer mandatory. For others, the proposals provide an opportunity to streamline governance structures and integrate remuneration oversight into existing board and governance processes. Firms considering simplification will need to ensure that clear ownership, challenge, and decision-making remain evident, particularly where remuneration structures depart from historic market norms, most notably:

• Remuneration committees would no longer be mandatory

• Annual independent remuneration reviews would no longer be required

• Certain remuneration-related reporting and disclosure obligations would be removed

Responsibility for remuneration oversight would instead sit within firms' broader governance and systems and controls frameworks.

The FCA has made it clear that reduced reporting does not eliminate the need for firms to maintain appropriate records demonstrating how remuneration policies operate in practice.

Who will be affected?

The consultation is closely linked to the FCA's wider UK AIFM reform proposals in CP26/28.

Initially, the new remuneration code would apply to full-scope UK AIFMs. Once the wider AIFM reforms take effect, the scope would transition to medium and large UK AIFMs under the proposed new categorisation framework.

Smaller AIFMs are expected to fall outside the remuneration regime altogether.

This means firms should assess CP26/27 alongside CP26/28 when considering their future regulatory obligations.

What should you be doing now?

Although the consultation remains open, firms may wish to begin considering several practical implications:

• Assess likely future categorisation under the proposed UK AIFM framework.

• Review existing remuneration structures and identify areas where greater flexibility could be beneficial.

• Revisit MRT identification processes in light of the proposed narrower definition.

• Consider whether existing remuneration committee structures remain necessary.

• Review governance frameworks to ensure remuneration oversight remains appropriately documented.

• Monitor developments in both CP26/27 and CP26/28 given the interaction between the two consultations.

Our view

CP26/27 represents a clear shift in regulatory burden. Rather than prescribing remuneration structures, the FCA is seeking to place greater responsibility on firms' management bodies to design arrangements that support good conduct, investor outcomes, and effective risk management.

For many UK AIFMs, the proposals should reduce administrative drain and provide significantly greater flexibility over remuneration design. However, firms may also need to exercise more judgement and ensure that remuneration decisions can be clearly justified through their governance processes.

When viewed alongside the wider reforms proposed in CP26/28, the consultation marks a further step in the FCA's move toward a more proportionate and UK-specific regulatory framework for alternative investment fund managers.

The reforms should not be viewed simply as deregulation. In many respects, they represent a transfer of responsibility from rule-based requirements to the judgement of senior leadership and management bodies, increasing the importance of governance frameworks and the quality of documented decision-making.

How we can help

At Buzzacott, our specialist Regulatory Reporting and Advisory team is closely monitoring the progress of the FCA's consultations and supporting clients in preparing for the changes ahead. We help firms assess the impact of regulatory developments, plan and implement any required changes, and navigate the transition to the new AIFM regime with confidence. By taking a proactive approach now, firms can reduce implementation risk and be well positioned when the new requirements come into force.

To explore the rest of our UK AIFM regime series and keep up to date with the FCA’s proposed reforms, visit our series hub for in-depth analysis of the latest consultation papers and what they could mean for your firm.