FCA proposes overhaul of remuneration rules for solo-regulated firms

On 14 July 2026, the Financial Conduct Authority (the “FCA”) published Consultation Paper CP26/27, Remuneration: Solo-regulated firms’ rules reform (the “Consultation”), setting out proposals to replace the FCA’s three existing sectoral remuneration codes with a single, outcomes-focused code. The Consultation – published alongside CP26/28 on reform of the Alternative Investment Fund Managers Directive (“AIFMD”) regime – represents a significant simplification of the FCA’s remuneration framework.

The Consultation closes on 16 September 2026, with final rules anticipated in Q1 2027. 

Background

The FCA’s existing remuneration requirements for solo-regulated firms are found across three separate regimes: the AIFM Remuneration Code (SYSC 19B), the UCITS Remuneration Code (SYSC 19E), and the MIFIDPRU Remuneration Code (SYSC 19G). Each of these codes derives, ultimately, from banking regulation introduced in the wake of the 2008 global financial crisis and subsequent EU reforms, which were designed principally to curb excessive risk-taking within banks.

Over time, these bank-derived requirements were extended beyond the banking sector to firms whose business models, risk profiles and remuneration incentives are different from those of deposit-takers. Sustained feedback from industry and the FCA’s own experience indicate that the body of rules that has developed is complex, overlapping, duplicative, overly difficult to apply and may impose an unnecessary burden on firms that do not pose a systemic risk. The FCA is also mindful that the UK regime is an outlier internationally, with other major jurisdictions adopting a more principles-based or supervisory approach to the remuneration of non-bank financial services firms. The case for change has also been sharpened by more recent reforms to remuneration requirements for dual-regulated firms, highlighting a corresponding need for change in the solo-regulated space.

The move towards a less prescriptive and more outcomes-focused approach forms part of the FCA’s wider ‘regulating for growth’ agenda, and the FCA considers that the reforms advance its secondary objective to facilitate the international competitiveness and growth of the UK economy.

What is being proposed?

The Consultation proposes to replace the three existing remuneration codes with a single new code which will sit in the FCA Handbook as a new SYSC 19AA. The new code would set out an outcomes-focused framework, representing a marked shift away from the current prescriptive, rules-based approach, placing greater reliance on firms’ own governance arrangements and the judgement of their management bodies. There is also a proposed narrowing of the scope of the remuneration regime, and whilst more stringent expectations would continue to exist for the remuneration paid to Material Risk Takers (“MRTs”), the definition of an MRT would be somewhat narrower.

Although the Consultation is very much a movement to an outcomes-based regime, perhaps most interesting are the FCA’s proposals on deferral, where it anticipates that some firms may want to retain a mandatory element. On this part of the framework the FCA is consulting in the alternative: it has set out its “Core preferred option” of a principles-based regime, but invites views on an alternative threshold-based approach. Under the alternative approach, mandatory deferral would apply to firms above specified thresholds, alongside a minimum deferral period. The FCA would seek to align these thresholds and deferral periods with classifications used in regulatory frameworks elsewhere, with the thresholds used in the remuneration part of the PRA Rulebook being one option. 

The key elements of the proposed reform are: 

1. A single consolidated code. SYSC 19B, SYSC 19E and SYSC 19G would be replaced by a single code at SYSC 19AA, removing duplication across the AIFM, UCITS and MIFIDPRU regimes.
2. An outcomes-focused approach. The new code shifts away from prescriptive requirements towards a framework built around desired outcomes, with firms’ governing bodies given greater discretion to design remuneration structures appropriate to their business.
3. A two-tier application structure. General requirements would apply to all staff, with additional provisions applying in the case of MRTs. 
4. Deferral. As discussed above, the FCA’s preferred option is a principles-based deferral requirement, with a threshold-based alternative also under consideration. Depending on the Consultation responses, the FCA will determine how this alternative will work in practice.
5. Performance adjustment. Malus and clawback would not be mandatory, with firms instead required to consider whether and how performance adjustment mechanisms should be used in the context of their business in order to support good conduct, compliance and risk management expectations.
6. Governance. There would be no mandatory requirement to maintain a remuneration committee or requirement for a formal annual remuneration review, with the emphasis instead on the need for firms to ensure strong and effective governance and oversight. Certain prescriptive reporting requirements relating to remuneration would also be removed, with reliance instead on existing record keeping obligations. 
7. Scope. Small and non-interconnected (“SNI”) firms would be removed from scope entirely. The regime would apply to full-scope UK AIFMs initially, transitioning to medium and large UK AIFMs in line with the framework and definitions proposed in the consultation on AIFM reform which is happening in parallel (CP26/28). UK UCITS management companies would continue to be captured. 
8. MRT definition. The MRT definition would be narrowed and refocused on staff whose activities or remuneration incentives have a material impact on the firm’s conduct towards clients or investors, the interests of investors, AIFs or UCITS funds, or the firm’s compliance with its regulatory obligations.
9. Guidance. Non-Handbook guidance, including the SYSC 19B guidance on the AIFM Remuneration Code and Finalised Guidance FG23/6, would be revoked. The FCA has suggested, though, that it may issue new Non-Handbook guidance and best practice communications to support the new regime. 

The FCA’s accompanying cost benefit analysis estimates total net benefits to firms, with a material reduction in ongoing compliance burden. 

Comment

The FCA acknowledges that removing prescriptive tools carries some risk – in particular, a weaker alignment between short-term incentives and longer-term outcomes. However, it considers these risks are mitigated by the continuing operation of the Senior Managers and Certification Regime (“SMCR”), the Conduct Rules, the Consumer Duty and ongoing supervisory oversight.

The scale of the proposed reform should not be understated. Replacing three overlapping and highly complex sectoral codes with a single, principles-based regime is a substantial departure from an approach that has, for over a decade, been characterised by prescriptive requirements largely derived from the banking sector. The removal of mandatory deferral structures, the softening of malus and clawback from default requirements to matters for consideration, and the abolition of mandatory remuneration committees together represent a genuine shift, giving firms greater flexibility. 

The proposed reforms will be welcome news to many solo-regulated firms, with a simplified, proportionate and more agile regime allowing greater freedom to attract and retain the talent needed within their business and a significantly reduced compliance burden. 

However, the proposals do not remove the underlying requirement on firms to design remuneration structures which do not incentivise excessive risk-taking or poor conduct outcomes, and guidance to accompany the new framework is likely to be central to help firms meet regulatory expectations. 

The focus on firms’ own judgements will also heighten scrutiny in the FCA’s supervisory work around strong governance structures, systems and controls and record keeping. Firms that have built compliance infrastructure around fixed deferral percentages, vesting schedules and mandatory remuneration committees should start considering whether changes would be appropriate, and what governance arrangements they will put in their place. SNI MIFIDPRU firms and smaller AIFMs that may fall out of scope should consider whether elements of the current regime reflect good practice worth retaining voluntarily, particularly where remuneration structures interact with Consumer Duty and Conduct Rules obligations.