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:



Full Article

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.

Governance

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 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 04/09/2009.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.