UK: Remuneration Reporting And Sale Incentives Developments

Last Updated: 12 September 2012
Article by Nicholas Stretch and Isabel Pooley

The FSA has recently produced two papers relevant to those working on financial services remuneration.

Data collection

In August, the FSA produced a consultation paper on remuneration reporting requirements for BIPRU firms and third country BIPRU firms. Click here to access the paper.  This has its origin in the CRD 3 requirement for national authorities to submit data to the European Banking Authority (EBA). The FSA has now published its own proposals following on from the EBA draft guidelines in July.

Larger institutions

The first part of this proposal is that firms/groups with total assets of £50 bn or more will have to submit information on the structure of remuneration in the group. This broadly equates to some 15 or so firms/groups and is equivalent to the proposed new Level 1 and 2 definition of the proposed proportionality regime. The stated purpose of this is the help the EBA to understand how remuneration is changing and differences between member states. Total assets are measured at the end of the previous financial year. These rules only apply where the FSA is lead or sole regulator of a firm. Reports should be made on a consolidated basis where appropriate and include general information as well as information on Code Staff.  The first data is to be delivered to the FSA by 31 December 2012 and will cover the last two complete financial years that ended before the rules come into effect on 1 November 2012. Accordingly, a firm with a calendar year end would have to submit 2010 and 2011 data by the end of 2012. Thereafter data is due within two months of a year end.

This data is anonymous and will not be publicly published. However, it will invariably overlap with what firms are already reporting as part of the Remuneration Policy Statement framework.

All firms other than solo limited licence and limited activity firms

The second part is a high earners report under which firms/groups other than solo limited licence and limited activity firms, will have to submit anonymous data on employees in the group with total annual remuneration of €1 m or more. There is no size threshold for this part of the reporting requirement and it should not include data from non-EEA branches and subsidiaries. The €1 m limit will be set in non-euro currencies on an annual basis according to exchange rates set by the EBA. A separate template will be required for staff in each member state in which the institution is operating. Employees operating in more than one country should be reported under the country to which they are most closely linked. There is a specified Excel spreadsheet which must be used. A nil return is required even if no earners earn above this level (though the FSA are likely to come under some pressure to drop this proposal). The deadlines and years for which data needs to be submitted are as for the larger institutions reports set out above.

The FSA will also be using the data gathering exercise to ask for additional diversity data on a voluntary basis. This will not be published (nor shared with the EBA) and will only relate to employees working in the UK.

The consultation period ends on 30 September 2012.

Sales incentives

The FSA's recent paper on sales incentives generally for more junior staff has received significant publicity. Click here to access the paper. So far most of the FSA's public work has been on remuneration frameworks for more senior staff with a view to preventing firm-wide weakness which damages the financial institution. Here the FSA is emphasising practices which damage the consumer (albeit that the knock on effect damages the financial institution once compensation and other claims have been resolved).

No specific changes are outlined here, but the FSA does say that repeated warnings about mis-selling do not seem to have been successful in light of continuing enforcement cases and that they are therefore considering whether to strengthen their rules in this area. This will be a workstream that the FCA will take forward once it is up and running, which would represent yet another angle to remuneration compliance. In the interim the FSA reminds firms that they should make sure that they have sufficient management information, business quality monitoring and controls on inappropriate behaviour and governance arrangements to counteract poor behaviour.

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

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 10/09/2012.

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