FCA Proposes Fundamental Overhaul of the UK Remuneration Regime for Investment Firms, Asset Managers and UCITS Management Companies

The Financial Conduct Authority (FCA) has proposed replacing the UK's existing remuneration codes for non-bank regulated firms with a single, principles-based framework. The reforms would significantly reshape how non-SNI MiFID investment firms, full-scope AIFMs and UCITS management companies design and govern remuneration.

 

Executive Summary

The FCA has launched a consultation — CP26/27 – Remuneration: Solo-regulated firms' rules reform — proposing the most significant reform of remuneration regulation for solo-regulated firms since the introduction of IFPR.

The proposals would replace the existing MIFIDPRU, AIFM and UCITS remuneration codes with a single principles-based regime, substantially reducing prescriptive requirements governing variable remuneration while placing greater emphasis on governance, board accountability and supervisory judgement.

Among the key proposals are:

• a revised, narrower definition of Material Risk Takers;
• significant relaxation of mandatory deferral requirements;
• removal of mandatory remuneration committees; and
• removal of many reporting and disclosure obligations.

The consultation closes on 16 September 2026, with final rules expected during Q1 2027. The new framework would take effect for remuneration relating to a firm’s next performance year starting on or after publication of the FCA’s final Policy Statement, with transitional arrangements for AIFMs aligned with the broader AIFM reforms.

 

Why Is the FCA Reforming the Remuneration Regime?

The FCA considers the existing UK non-bank remuneration regimes have become unnecessarily complex following evolution over more than a decade through successive implementation of European legislation, including CRD III/BIPRU, IFPRU, AIFMD, UCITS V, MiFID II and, following Brexit, MIFIDPRU (which substantively implemented the EU’s Investment Firms Prudential Regime (IFPR) into UK legislation). The FCA believes firms are subject to overlapping remuneration codes that are costly to administer and more prescriptive than necessary. CP26/27 therefore proposes replacing the current detailed rules with a simpler, principles-based framework focused on governance and outcomes.

 

A Simpler, Principles-Based Remuneration Code

Creation of a Single Remuneration Code

The centrepiece of CP26/27 is the creation of a single remuneration code applying to:

• non-SNI MIFIDPRU investment firms (SNI MIFIDPRU investment firms will be removed from remuneration requirements);
• full-scope and small authorised AIFMs;
• UCITS management companies; and
• groups containing those firms where group remuneration policies are relevant.

Rather than maintaining separate remuneration chapters within SYSC, the FCA proposes revoking the AIFM remuneration code in SYSC 19B, the UCITS remuneration code in SYSC 19E and the MIFIDPRU remuneration code in SYSC 19G and consolidating the requirements into a new standalone remuneration code, SYSC 19AA, reducing duplication and aligning core principles across sectors.

Greater Flexibility

The FCA proposes replacing (or removing) many of the current remuneration codes’ detailed remuneration structure rules with broader principles requiring firms to establish remuneration arrangements that appropriately promote effective risk management, support sound governance and avoid incentives that could result in poor customer or investor outcomes. For firms accustomed to highly formulaic remuneration structures, this represents a significant increase in flexibility.

Rather than prescribing precisely how remuneration must be structured, the FCA proposes placing greater responsibility on firms themselves to determine what remuneration arrangements are appropriate given their business model, activities, risk profile and governance arrangements.

Less Prescription

Under the current framework, many firms are required to defer a significant proportion of variable remuneration for prescribed periods, deliver such remuneration partly in instruments and apply prescribed retention periods together with malus and clawback mechanisms. The FCA proposes removing much of this prescriptive architecture, instead allowing firms considerably greater flexibility in determining how variable remuneration should operate provided the overall remuneration framework appropriately supports prudent risk-taking and effective governance.

The consultation does not suggest that deferred remuneration, malus or clawback will become redundant. Rather, the FCA proposes that firms should determine whether, and to what extent, those mechanisms are appropriate in light of their own business model and risk profile, instead of applying them because the rules prescribe them.

Governance Becomes Even More Important

A recurring theme throughout the consultation is that increased flexibility will be accompanied by increased board accountability. The FCA makes clear that remuneration should remain an important component of firms' governance framework and wider risk management arrangements.

Boards and remuneration committees will need to be able to show that remuneration policies support effective risk management, encourage good conduct and remain aligned with the interests of investors and clients.

Accordingly, many firms may find that the compliance burden shifts from documenting compliance with prescriptive remuneration rules towards producing a more sophisticated governance narrative capable of demonstrating why remuneration arrangements are appropriate.

 

Deferral Requirements — Two Alternative Approaches

One of the consultation’s most significant proposals concerns mandatory deferral of variable remuneration. The FCA is consulting on two possible approaches:

Option 1 – Principles-based approach. Under the FCA's preferred approach, firms would determine for themselves whether deferred variable remuneration is appropriate for their MRTs and, if so, the appropriate design of those arrangements. Firms would have flexibility over the structures and duration of deferral mechanisms, in light of their business characteristics.

Option 2 – Targeted mandatory deferral. As an alternative, the FCA asks whether mandatory deferral over a minimum specified period should apply only to firms above a specified total assets threshold (of £4 billion), on a tiered basis. This option would still provide significantly greater flexibility than the current regime.

 

Material Risk Taker Population — A Narrower Definition

The FCA proposes replacing the current prescriptive MRT definition with a more targeted test focused on individuals whose activities or remuneration incentives could materially affect the firm's conduct, regulatory compliance or outcomes for clients and investors. Many firms may therefore identify a smaller MRT population.

This has consequences beyond remuneration. As MRTs remain a separate certification function under the SMCR, a narrower MRT population would also reduce the number of individuals requiring annual certification under the SMCR where they are not otherwise caught by another certification function.

MRTs would still be subject to principles-based requirements relating to fixed and variable remuneration, performance assessments, guaranteed variable remuneration, deferrals and performance adjustment mechanisms (e.g. malus and clawback).

 

Remuneration Committees No Longer Mandatory

The FCA also proposes removing the current requirement for certain firms to establish a remuneration committee. Firms would instead determine the governance arrangements appropriate to their size, business and risk profile. In practice, many larger firms are nevertheless likely to retain remuneration committees as a matter of good governance.

 

Streamlining Reporting and Disclosure

Finally, the consultation proposes removing existing remuneration reporting under MIF008 and public disclosure obligations under MIFIDPRU 8.6, reflecting the FCA's broader objective of reducing unnecessary regulatory burdens and moving to a more proportionate, outcomes-focused framework. Transitional requirements would, however, continue to apply in relation to remuneration awarded under the existing rules.

 

What Firms Should Do Now

• Review whether your existing remuneration policies and governance remain appropriate if the current proposals are adopted.
• Consider how your current MRT population may be affected by the proposed MRT definition.
• Review your existing deferral arrangements to ensure they remain commercially appropriate.
• Consider UK/EU divergence, if you are part of an international group or have regulated entities in both geographies.

 

Next Steps

The consultation closes on 16 September 2026, with the FCA expecting to publish final rules during the first quarter of 2027. The consultation presents a valuable opportunity for firms to influence the future UK remuneration framework before the rules are finalised. Firms that may benefit from greater flexibility under the proposed regime should consider whether to engage with the consultation process.

If you would like to discuss responding to the consultation or the implications for your remuneration arrangements, please get in touch with us using the contact information below.