Reed Smith Client Alerts

The new EU prudential regime in the Investment Firms Regulation (IFR) and the Investment Firms Directive (IFD), which will apply from 26 June 2021, will impose a new set of remuneration code requirements on investment firms, which could prove to be burdensome for firms that are currently subject to a ‘light-touch’ approach.

Authors: David Calligan David Ashmore Bhav Panchal

empty board room table and chairs

The remuneration code requirements will cover matters such as ratios for fixed and variable pay (no hard numerical cap is contemplated), remuneration governance and policies, remuneration committee oversight, disclosure and regulatory reporting. Whilst many of the remuneration rules’ concepts, requirements and principles will be familiar to investment firms, the biggest impact is likely to be felt by (a) adviser-arranger firms, which are not currently subject to the rules in the existing remuneration codes, and (b) those firms that are currently able to disapply the more onerous structural requirements.

Although the IFR/IFD will apply from 26 June 2021, the new remuneration rules will likely apply to the remuneration payments for the year commencing January 2022.

Which firms?

The application of the rules depends on how the investment firm is classified under the IFR/IFD.

Class 1 firms

These firms include certain proprietary trading firms, securities underwriters and placing agents. They will continue to be subject to the remuneration requirements in the CRR/CRD.