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Employment law alert for FCA investment firms: will your remuneration policies and employment contracts be compliant come 2022?

By Sarah Jackman
November 17, 2021
  • Employment contracts
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There will be significant changes to how FCA investment firms manage staff remuneration for performance years starting from 1 January 2022. The changes being introduced by the new Investment Firms Prudential Regime (IFPR) will impact all MiFID investment firms, but the scale of the changes will depend on a firm’s classification. 

All investments firms will require to put in place remuneration policies and practices applying to all staff. These will set out minimum standards and ensure sound governance.

In addition, “non-SNI firms” will also be required to identify “material risk takers” and decide on the appropriate ratio of variable to fixed remuneration, applicable to all staff. 

For these firms, the new IFPR includes a requirement for variable pay to be subject to malus and clawback and restrictions on the use of guaranteed bonuses, retention awards and severance pay.

The largest of these firms (“significant non-SNI firms”) will also be required to defer variable pay for material risk takers, which may no longer be paid fully in cash. They will also be required to establish a remuneration committee.

Firms will be required to disclose specified key characteristics of their remuneration policies and practices, and the amounts of fixed and variable remuneration awarded to staff as a whole. Non-SNI firms will have to break this down between senior management, material risk takers and other staff.

These changes align with practices already in place in other regulated entities, such as banks. Our employment lawyers are experienced in working together with our regulatory colleagues to build solutions for employee contracts and reward communications. The changes will be unsettling for groups of employees who are not familiar with strict regulation being applied to their reward package. For some employees the changes will bring with them cash flow impacts and employers should get on the front foot before concerns are escalated.

Firms will need to ensure they are contractually entitled to defer, delay or claw back payments when they are required by the new IFPR to do so. This will require employee written consent, which will not currently be in place in every case.

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employment contracts, remuneration
Sarah Jackman

About Sarah Jackman

Sarah specializes in employment law and is counsel in Dentons' Glasgow office. With extensive in-house experience in the financial services sector, she is a trusted advisor to many of our high-profile clients. Known for aligning her legal advice with clients' business priorities and culture, Sarah often acts as an extension of in-house legal and HR teams. Her background in banking gives her a deep understanding of HR's role in regulatory matters, allowing her to advise on both contentious and non-contentious issues – particularly those related to the Senior Managers and Certification Regime. Sarah is also a frequent speaker at client events and has a keen interest in employee wellbeing. In 2024, she was selected as an inaugural member of our Shadow Executive Team.

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