UK: FSA Questionnaire For Remuneration Policy Statements

Last Updated: 7 September 2009
Article by Nicholas Stretch and Anthony Fincham

With the backdrop of the G20 itself discussing further possible changes to bonuses, the FSA has as scheduled taken its next step and written to the largest 26 UK financial institutions which will be caught by the final version of the FSA's Remuneration Code published on 12 August 2009.

The letter formally asks them to complete an enclosed questionnaire (with 33 questions and 6 tables) to give the FSA hard data, a detailed understanding of the firms' remuneration policies but most importantly how they intend to comply with the Code now that the it is finalised. Responses will be kept confidential, but clearly must be accurately submitted and bring home the new regime that is now to apply and will be enforced in this area, as well as the huge cost of compliance.

A copy of the Code can be found here.

A copy of our previous article regarding the Code can be found here.

To view the article in full, please see below:

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With the backdrop of the G20 itself discussing further possible changes to bonuses, the FSA has as scheduled taken its next step and written to the largest 26 UK financial institutions which will be caught by the final version of the FSA's Remuneration Code published on 12 August 2009.

The letter formally asks them to complete an enclosed questionnaire (with 33 questions and 6 tables) to give the FSA hard data, a detailed understanding of the firms' remuneration policies but most importantly how they intend to comply with the Code now that the it is finalised. Responses will be kept confidential, but clearly must be accurately submitted and bring home the new regime that is now to apply and will be enforced in this area, as well as the huge cost of compliance.

A copy of the Code can be found here.

A copy of our previous article regarding the Code can be found here.

Firms are asked to respond to the questionnaire by 2 November 2009. They should provide an update following the conclusion of their 2009 remuneration reviews, and complete the questionnaire on the basis of the remuneration policies they intend to have in place from 1 January 2010.

The questions raised by the FSA are wide-ranging and it would appear that anyone hoping that the FSA may adopt a light-touch on checking compliance with the Code will be disappointed. The questionnaire covers all areas of the Code but goes further than this by requesting information about the actual levels of remuneration paid to employees, what proportion of net revenue this represents, the split between fixed and variable elements of remuneration, levels of deferred remuneration and any guaranteed bonuses paid. This is despite the FSA's stated position that it was not concerned with the level of remuneration paid, or how profits are distributed between shareholders and employees, but rather with ensuring that remuneration policies provide appropriate incentives and are consistent with good risk management. Accordingly, particularly as the G20 discusses quantum of pay as this article is written, it may be that the FSA is arming itself with relevant data for action in this area too, should it be directed to do so.

Key features of the questionnaire include:

Remuneration policies and risk:

  • How remuneration policies support business strategy and risk appetite and the implications those policies have for risk and risk management;
  • What changes have been made to those policies in response to the banking crisis and the effect those changes have had on the firm and the behaviour of its employees;
  • How policies are communicated to staff and how staff know what behaviours will, or will not, earn them a bonus;
  • Whether bonus pools are calculated before or after sufficient profit has been accrued to ensure shareholders have an adequate risk adjusted return.


In relation to the remuneration committee: its constitution; how it will ensure it has the skills and experience necessary to reach an independent view on the suitability of the institution's remuneration policy and its risk implications; and how it will receive advice from the institution's risk management function;

  • The procedures for setting remuneration policies across the firm and whether the firm intends to increase the disclosure it makes about its remuneration policies to shareholders and other stakeholders;
  • The procedures for ensuring appropriate input from the risk and compliance functions and how their remuneration is determined.

Remuneration structures and measuring performance

The performance criteria to be applied to executive directors and other senior employees for 2010 and how they will be applied in practice;

  • How bonus pools are calculated adjusted for current and future risk;
  • How the remuneration structures for those employees with a "significant influence function" or whose activities could have a material impact on the firm's risk profile (i.e. those covered by Principle 8 of the Code) will be consistent with and promote effective risk management and whether those structures will allow the firm not to pay a bonus if a loss was made in 2010;
  • The policies to be adopted to defer variable remuneration and whether the vesting of deferred remuneration will be linked to future performance. Where shares and share options are granted, will they be subject to performance conditions and will those conditions be risk adjusted?
  • Where guaranteed bonuses spanning more than one year have been awarded since the FSA published its draft Code on 18 March 2009, the reasons for granting them and who approved them. Firms will also need to state their policy on buying out the deferred bonuses of new joiners from previous employers.

In addition, there is a reminder that by 1 January 2010, firms will be required to have begun a review of how well their long term incentive plans take account of future risks.

As firms complete them, they will no doubt be mindful of any breaches of the Code and how they can be justified.

Although the questionnaire has only been sent to those 26 firms who will be caught by the Code from 1 January 2010, the FSA will report in October on whether other financial services companies should have some express remuneration-related rules applied to them. Recent indications have been that the FSA is focusing on larger firms with systemic risk and that remuneration oversight for smaller firms is less of an interest, but with the whole area the subject to such debate at the moment, it is very difficult to predict what will emerge in October.

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 04/09/2009.

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