UK: FSA Consults On Remuneration Disclosure Requirements

Last Updated: 15 November 2010
Article by Nicholas Stretch, Anthony Fincham and Simon Morris

The FSA has today issued a consultation paper on public disclosure of remuneration arrangements for firms caught by CRD3 (i.e. the same firms who will be subject to the extended Remuneration Code). For a link to the consultation paper, please click here.

What is still unclear, however, is whether the current Coalition Government will still be pressing ahead with proposals contained in the Financial Services Act to require the production of a separate report which was the subject of draft regulations published earlier this year. This included banding of remuneration (the CRD3 proposals just require a total to be given) and non-binding shareholder votes.  To read our earlier Law Now on this please click here.  The consultation paper states that the FSA has been given responsibility for implementing the CRD3 disclosure requirements but it is silent on what is to happen in relation to those earlier proposals which go beyond this.  An announcement is still awaited on this.


While the FSA has already began a consultation process on the substantive remuneration parts of CRD3, consultation on public disclosure, which is inevitably bound to inflame public opinion, had been delayed.  It is now being conducted as a separate exercise.

Remuneration to be disclosed

In summary, this includes:

  • information on the remuneration decision-making process
  • the link between pay and performance
  • the most important design characteristics of the remuneration system
  • performance criteria for assessment of remuneration
  • the main parameters and rationale for variable compensation; and
  • aggregate quantitative information on total remuneration, variable remuneration, deferred remuneration and sign-on and severance payments in respect of senior management and staff with a material impact on the firm's risk profile (probably this will be "Code Staff" within the meaning of the Remuneration Code).

Frequency of disclosure

Firms will need to disclose details of their remuneration policies at least on an annual basis.  The FSA will require firms to make their first disclosure in respect of 2010 remuneration as soon as practicable, and no later than 31 December 2011.

Form of disclosure 

Disclosure may take the form of a stand-alone report or may be included in a firm's annual report and accounts.


CRD3 permits regulators to apply the rules on a proportionate basis, taking account of firms' size and complexity.  The FSA intends to divide firms into four tiers based primarily on their regulatory capital and type of regulatory licence or permission.  Each group will be subject to a different degree of disclosure as follows:

Tier 1 firms – Full disclosure of all items under CRD3 – This will include around 26 very significant groups.  The FSA expects firms of this size and complexity to observe the highest standards of disclosure.

Tier 2 firms – Disclosure of most qualitative items (including design characteristics of remuneration) and selected quantitative items – the FSA expects this category to include around 200 major firms which will be expected to provide a high degree of disclosure, although some finer details need not be disclosed.

Tier 3 firms – Disclosure of most qualitative items (excluding design characteristics of remuneration systems) and selected quantitative items – the FSA expects this category to include around 300 firms, which will be expected to provide a high degree of disclosure, although details such as the design characteristics of remuneration need not be disclosed.

Tier 4 firms – Disclosure of basic qualitative and quantitative items only – the FSA expects this category to comprise over 2,000 firms with limited regulatory licences or permissions.  These firms will be expected to disclose only basic qualitative and quantitative information on remuneration.

Annex 3 to the consultation paper sets out in more detail which elements of the CRD3 proposals are proposed to apply to each of the above tiers of firms.


In addition, the FSA is seeking feedback on whether there would be any meaningful disadvantages in extending the scope of disclosure requirements to include non-EEA firms operating through branches in the UK.

Deadline for responses

The consultation period closes on 8 December 2010 and the FSA intends to publish a policy statement on remuneration disclosure in mid-December, which is when the FSA is now due to publish the final version of the revised Remuneration Code.

Form of report

The paper gives little indication of what the FSA expects public disclosure to look like.  No doubt it wants to prevent bland pro-forma disclosure.  However, firms will inevitably look at listed companies' directors remuneration reports which have now been giving public disclosure in a statutory format for almost ten years on many of the same issues.  Here, disclosure has been very boilerplate where qualitative disclosure has been required and it will be interesting to see whether firms' CRD3 remuneration reports stay in that comfort zone.  Given that inadequate supervision of remuneration and risk in financial services could give rise to much greater public liability for firms, concern about limiting exposure is one obvious factor to consider.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 10/11/2010.

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