The FCA is proposing significant changes, tearing up three rule books and replacing them with one. In its recent consultation paper (CP26/27), it has proposed a single new remuneration code for solo-regulated firms. 

If the proposals are adopted, some firms will be removed from the scope of the remuneration codes altogether.  For those that remain in scope, the move away from detailed and prescriptive rules to an outcomes-focused approach in the new code will give firms considerably more flexibility to apply the rules in a way that reflects their size, structure and activities. 

We set out below the key proposals and their practical implications for firms.

Which firms are in scope of the proposed new code?

The new remuneration code for solo-regulated firms (SYSC 19AA) would replace the existing codes for alternative investment fund managers, UCITS management companies and MIFIDPRU investment firms. This table illustrates how the existing codes map onto the proposed new framework.

In a separate consultation published at the same time on reform of the UK AIFM regime (CP26/28), the FCA proposed replacing the current “full-scope UK AIFM” / sub-threshold categorisation with a three-tier structure: small, medium or large. If adopted, the new remuneration code would reflect this structure, as illustrated above. However, if that categorisation is not adopted or only takes effect after the new code is introduced, the code would initially apply to full-scope UK AIFMs (as currently defined), with other UK AIFMs falling outside scope.

The existing MIFIDPRU remuneration code requirements vary depending on whether a firm is categorised as subject to “basic”, “standard” or “extended” rules. Under the new code for solo-regulated firms, this distinction would be removed. The code would simply apply a single set of provisions to all non-SNI MIFIDPRU investment firms, irrespective of size. SNI MIFIDPRU investment firms would fall outside the scope of the new code altogether.

Which employees would be within scope of the new code?

The new code would take the same approach as the current MIFIDPRU remuneration code: general remuneration requirements would cover all individuals working for the firm, with additional requirements applying to “material risk takers” (MRTs). For the purposes of the new code, MRTs would be those staff members whose work or remuneration incentives have a material impact on:

• the firm’s conduct in relation to its clients and investors;
• the interests of investors, alternative investment funds and the UCITS schemes; or
• the firm’s compliance with its regulatory obligations.

In the consultation paper, the FCA describes this as a “narrowed” definition. The current MIFIDPRU remuneration code definition of a MRT (and the definitions of code staff under the AIFM and UCITS remuneration codes) looks only at an individual’s impact on the firm’s risk profile, but accompanies that with detailed rules specifying when the necessary impact will be deemed present. Whether the new approach does in fact capture fewer individuals remains to be seen.

What rules would the new code contain?

The new code would remove current requirements for firms to establish a remuneration committee.  However, all staff at firms within scope would be subject to general remuneration requirements including the need for documented remuneration policies and practices that:

• contain measures to avoid conflicts of interest and are, more generally, aimed at promoting good conduct and a healthy culture; align remuneration with the interests of clients, funds and investors; and promote sound and effective risk management;
• ensure appropriate governance arrangements for remuneration policies, including provisions for periodic review; and
• ensure staff in ‘control functions’ (functions that objectively assess and report on a firm’s risk, such as Risk or Audit) are remunerated on the basis of objectives linked to their personal functions, and that those who are also ‘senior officers’ in those functions have their remuneration directly overseen by a ‘management body’.

MRTs would be subject to additional ‘remuneration principles’:

Proportion of fixed and variable pay: Firms must make a clear distinction between an MRT’s fixed and variable remuneration, with the obligation to ensure the balance is appropriate to the firm’s business model and risk profile. Fixed remuneration must be sufficiently high to allow variable remuneration to be reduced or withheld if appropriate.

Performance assessment: Firms must assess MRTs’ performance using non-financial criteria (such as conduct and risk management) and not financial criteria only.

Guaranteed variable remuneration: Firms must ensure guaranteed variable remuneration is only awarded when hiring an MRT or ‘buying out’ lost remuneration from a previous employer and is then time-limited (not an ongoing entitlement).  There would no longer be the regulatory expectation that such remuneration should only be rewarded rarely and not as common practice.  It must also be subject to appropriate adjustment, reduction or recovery – as is currently the case.

Severance pay: Severance pay must reflect the MRT’s performance and not reward failure.

Deferral: Under the FCA’s primary proposals, MRTs would only be subject to deferral if a firm’s management body decided this was appropriate. It would then be for the management body to determine the structure and duration of any deferral, having regard to the firm’s own business – for example, the periods for which its investors are invested. The FCA would not mandate a minimum percentage of variable remuneration to be deferred, nor the split between cash and shares/other non-cash instruments, nor the vesting schedule. However, recognising that some firms might prefer a mandatory element, the FCA has also proposed an alternative: requiring firms over a certain threshold (potentially those with total assets between £4bn and £20bn) to apply mandatory deferral for a minimum period.

Performance adjustment mechanisms: Firms would be required to consider whether it would be appropriate to use performance adjustment mechanisms such as malus and clawback, but this would not be mandated. If a firm does consider it appropriate, it would be expected to ensure any adjustment is proportionate and prevents the MRT from benefiting from their own misconduct.

Whilst the proposed new code contains guidance on matters such as when it might be appropriate to defer an MRT’s variable remuneration and what performance adjustment mechanisms a firm might use, it is clearly less prescriptive than the three codes it is intended to replace. Notably, it contains no thresholds governing the proportion of remuneration that must be deferred, and no maximum or minimum time periods for deferral, malus or clawback.

How will firms know that the remuneration practices they adopt are compliant?

The FCA has recognised in its consultation paper that moving from “detailed and prescriptive rules” to a more outcomes-focused approach will necessarily rely more heavily on a firm’s governance structures and management body’s judgement. The proposed new code does contain guidance alongside rules, in the normal way. However, even this is quite light, leaving wide scope for varied approaches across firms and potentially for firms to adopt policies that the FCA would not consider appropriate.

There is no formal process for obtaining prior clearance from the FCA. However, the FCA has stated that firms currently compliant with the existing three codes should generally expect to remain compliant under the proposed new code. This may encourage more cautious firms to take a ‘wait and see’ approach – only relaxing their current rules when they foresee a risk of losing talent to competitors who have taken advantage of the flexibility.

What next?

The FCA’s consultation on these proposals closes on 16 September 2026. Depending on the outcome, the FCA expects to publish its Policy Statement at some point in Q1 2027. The intention is for the new rules and handbook guidance to take effect the day after the Policy Statement is published, but only applying to remuneration for performance periods commencing on or after that date.

Depending on the timing of the Policy Statement and a firm’s performance periods, firms wishing to capitalise on the flexibility afforded by the new code may have to wait until their 2028 performance period to do so. This gives firms time to consider their position and amend their documentation. It also allows them to assess the impact of changes to unfair dismissal law, due to take effect from 1 January 2027. As we commented in our recent article on this topic, the changes to unfair dismissal law are expected to fundamentally alter the fabric of negotiated exits. Revisiting deferral arrangements to ensure they provide sufficient leverage in negotiations is therefore on many firms’ ‘to do lists’. This might slow any immediate market trend for reducing deferrals.

Have your say    

The FCA considers that these changes will reduce the regulatory burden on firms and improve their ability to attract and retain talent, thereby improving or maintaining the international competitiveness of the industry as a whole.

• Do you agree?
• Are you in favour of the FCA’s proposals, or do you prefer the certainty afforded by the current “detailed and prescriptive rules”?
• What are your views on the new definition of MRTs?

Please share your thoughts with us on these issues and the proposed new remuneration code more generally. Lewis Silkin is contributing to the consultation responses of the City of London Law Society and the Employment Lawyers Association.