17 November 2020
The UK’s HM Treasury, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have published a short joint statement on planned timelines for introducing the UK’s Investment Firms Prudential Regime (IFPR) (which will establish a new prudential regime for MiFID investment firms in the UK) and the implementation of Basel reforms which make up the UK equivalent to the outstanding elements of the EU’s Capital Requirements Regulation II. The authorities had originally intended to implement these regimes in summer 2021 but, due in part to concerns from industry about the volume of regulatory reform in 2021, the targeted implementation date has been pushed back to 1 January 2022.
The delayed implementation should be welcomed by those firms that are already stretched with managing the impact of Brexit and a range of other regulatory reforms. From a remuneration perspective, the delay should also be welcomed by those firms that currently comply with existing remuneration requirements in a proportionate manner but which may be required to materially change their remuneration structures once the IFPR comes into effect, given that the IFPR is anticipated to contain a more stringent and less subjective concept of proportionality. The delay will give those firms more time to prepare for the changes and to communicate with impacted staff. It is likely that the new IFPR remuneration rules will be applied to remuneration related to performance years beginning on or after 1 January 2022, although this will need to be confirmed by the authorities.
It is worth noting that there is no indication that the implementation of the Capital Requirements Directive V (CRD V) (as covered in our alerts on the FCA and PRA consultations), including the material changes to the remuneration rules impacting credit institutions and designated investment firms, will be delayed. As CRD V must be implemented by EU member states by 28 December 2020 and applied from 29 December 2020 (that is, during the Brexit transition period during which the UK must continue to implement and apply EU laws), the UK must implement the CRD V remuneration rules in line with the EU requirements.
If you have any questions on this alert, or on your remuneration compliance generally, please do let me know.