The FCA is proposing to replace the existing Remuneration Codes for AIFMs, MiFID investment firms, and UCITS management companies with a single consolidated Code.

By Becky Critchley, Nicola Higgs, Rob Moulton, and Charlotte Collins

Key Points:

  • The changes intend to make the regime more streamlined, proportionate, and outcomes-focused, but the jury is out on whether they achieve this aim for larger firms.
  • As part of the reforms, the FCA proposes to remove many smaller firms from scope, and change the “material risk taker” definition.
  • The FCA also proposes to make the application of deferral, malus, and clawback mechanisms non-mandatory.

The FCA announced last year that it was carrying out a review of the remuneration framework for asset managers and investment firms. This announcement came when the PRA was finalising certain relaxations to the remuneration code for banks, which resulted in significant new liberalisations with a view to making the UK a more competitive environment for banking businesses (see this Latham blog post), and came after the removal of the bankers’ bonus cap in 2023.

On 14 July 2026, the FCA published a Consultation Paper (CP26/27) on significant reforms to the Remuneration Codes for solo-regulated firms, seeking to ensure that the rules for solo-regulated firms are proportionate and in line with international norms.

Key Proposals

Reducing Scope

The FCA intends to apply the new framework only to larger firms — meaning firms that are not classified as small and non-interconnected under MIFIDPRU, and starting with full-scope UK AIFMs initially, before moving to only medium and large UK AIFMs once the wider reforms to the UK AIFMD take effect. However, all UK UCITS management companies would remain in scope.

Additionally, the FCA proposes to narrow the definition of “material risk taker” (MRT) so that this includes only staff members at in-scope firms whose professional activities or remuneration incentives have a material impact on:

  • the firm’s conduct in relation to its clients and investors;
  • the interests of investors, the relevant AIFs, and the relevant UCITS schemes; or
  • the firm’s compliance with its obligations under the regulatory system.

At present, the definitions of MRTs (referred to as “Code Staff” under the AIFM and UCITS Codes) link the risk an individual poses to particular roles and levels of remuneration, whereas the new definition would focus solely on their actual influence. A proposed guidance provision states that the FCA expects firms to focus on the substance of the individual’s role and the remuneration incentives, rather than their job title or seniority. It also provides some examples, such as where the individual is responsible for key strategic decisions or can commit the firm, its clients, or investors to risk exposures or business strategies that may cause material harm. The FCA states that this change “is intended to better target individuals whose roles and incentives are most relevant to the remuneration outcomes we are seeking and reduces reliance on prescriptive role based approaches”.

Consolidating the Codes

The FCA proposes to replace the existing Remuneration Codes for AIFMs (SYSC 19B), MIFIDPRU firms (SYSC 19G), and UCITS management companies (SYSC 19E) with a single consolidated Code (to be labelled SYSC 19AA). It considers that this change would simplify the framework and help reduce duplication for firms that are currently subject to one or more of the Codes.

To further streamline the regime, the FCA does not intend to replicate the current tiering structure in the MIFIDPRU Remuneration Code (which applies basic, standard, and extended requirements to firms based on certain thresholds and firm characteristics), meaning that all of the larger firms subject to the new Code would apply the same measures, regardless of size. The FCA aims for these changes to result in a more proportionate regime and avoid firms applying the most burdensome requirements by default for simplicity.

As with the current MIFIDPRU Remuneration Code, the FCA is proposing that the new Code will require firms to apply general remuneration requirements (such as requirements to have effective remuneration policies and appropriate governance) across all staff (all individuals working for the firm, including employees, partners or members, secondees, and employees of other entities within the group who provide services to the firm) and to apply additional remuneration requirements (known as the “remuneration principles” and covering areas such as deferral and performance adjustment) to MRTs. This will be a change for AIFMs and UCITS management companies, which only need to apply the requirements to Code Staff at present.

As well as consolidating the Codes, the FCA is proposing to make the new Code more outcomes-focused, with a greater emphasis on firm judgement and strong governance. This would provide firms with the flexibility to adopt different remuneration structures and approaches.

Further, the FCA intends to revoke the current non-Handbook guidance on the Remuneration Codes. There are no proposals for replacement guidance at this stage, although the FCA states that it is considering whether additional guidance would be helpful.

Application of Detailed Remuneration Requirements

The FCA wants to introduce greater flexibility in how firms apply the detailed remuneration principles to MRTs. This would pass significant responsibility to firms’ management for demonstrating that they have effective remuneration structures in place to support good conduct and appropriate risk-taking.

For example, on deferral, the FCA is proposing a more principles-based approach whereby the firm’s management body would be responsible for deciding whether to apply deferral and, if so, for designing any deferral mechanisms. The FCA would not mandate minimum deferral periods or fixed structures, or the form of deferral. It does, however, propose guidance to suggest that deferred variable remuneration may be appropriate when an MRT carries out:

  • trading activities where remuneration may be earned upfront, but where profit or loss emerges later;
  • activities relating to the firm’s obligations under the Consumer Duty where outcomes can only be assessed over longer time horizons; or
  • activities managing money or assets for AIFs, UCITS schemes, and their investors.

This may end up requiring something of a “comply or explain” approach.

Recognising that this approach would place much greater weight on firms’ judgement, and on demonstrating the basis upon which the decisions had been made, the FCA also presents an alternative option of prescribing mandatory deferral for larger firms, including minimum deferral periods.

In addition, the FCA does not propose to make the application of performance adjustment mechanisms (such as malus or clawback) mandatory, but again to leave it to firms to decide whether to use these. The FCA also proposes to simplify how firms treat guaranteed variable remuneration to allow greater flexibility for firms to use this when hiring. At present, this can only be paid in exceptional circumstances. However, the FCA is proposing to permit guaranteed variable remuneration in the context of hiring a new MRT or compensating the MRT for remuneration forfeited on leaving the previous employment, provided that:

  • it is time-limited and does not create an ongoing entitlement to guaranteed variable remuneration; and
  • it is subject to appropriate adjustment, reduction, or recovery under the firm’s remuneration policies and practices, including in cases of misconduct or where misaligned incentives may cause material harm.

Governance and Reporting

The FCA is proposing to remove the requirements for firms to have a remuneration committee and to conduct a formal annual review of remuneration, although firms would still need to ensure their remuneration policies and practices are subject to appropriate oversight and review.

Further, the FCA intends to remove the remuneration reporting requirements for MIFIDPRU firms, along with the remuneration disclosure requirements, as it considers that this information is no longer required to support effective supervision.

Next Steps

Comments are requested by 16 September 2026, and the FCA plans to publish a Policy Statement in Q1 2027. The new rules would take effect the day after publication for MiFID firms, UCITS management companies, and full-scope UK AIFMs, applying to remuneration relating to performance periods beginning on or after that date. Once the wider reforms to the UK AIFMD take effect (expected to be 2028), the new Code would only apply to medium and large UK AIFMs under the revised regime.

The FCA’s bold approach to reform in this area is likely to be welcomed by firms, particularly MiFID firms for which the changes would represent a significant simplification. The proposals would introduce much greater flexibility for firms in designing their remuneration structures and applying some of the more onerous requirements of the regime, and could significantly reduce the regulatory burden.

However, this flexibility comes with a significant trade-off: firms would bear much greater responsibility for demonstrating that their remuneration policies and practices incentivise the right behaviour and strike the right balance. The additional flexibility could make it harder for firms to apply stricter measures if they face pressure from key MRTs to relax their use of performance adjustment mechanisms. Firms will likely request that the FCA produce guidance on the new regime, to help ensure that they are meeting regulatory expectations.

Further, the consolidation of the three existing Codes into a single framework may also have varying effects across different firm types. For MiFID investment firms, the new Code would represent a simplification, whereas AIFMs and UCITS management companies may end up with more detailed provisions in some areas.