Remuneration Disclosure

Whilst BIPRU firms consider the impact of CP10/19 and the Remuneration Code (see e.g. Regulatory Roundup 20), the FSA has released CP10/27 “Implementing CRD3 requirements on the disclosure of remuneration”.

Although different language is used, the disclosure will relate to ‘Code staff’ – again reference should be made to Regulatory Roundup 20 – although ‘significant’ firms will be required to disclose at the level of senior personnel. As will be appreciated, both consultations stem from amendments to the Capital Requirements Directive. As amendments to the latter are set to come into force on 1 January 2011 the scope for substantial changes to the proposals is limited.

Although the Remuneration Code will be reflected in SYSC 19 of the handbook, the disclosure requirements arising from the latest CP will be by way of amendment to BIPRU 11 (“Disclosure (Pillar 3)”).

Remuneration disclosure varies from information on the links between pay and performance to information on the performance criteria on which entitlement to shares etc. is based.

Firms will be required to make disclosure to the public which is updated at least annually. Although the FSA is setting a deadline of 31 December 2011 for firms to make their first disclosure under this regime, they also expect disclosure to be made ‘as soon as practicable’. As to the method of disclosure, on the one hand the FSA is not intending to add to BIPRU 11.3.10 ‘Media and location of publication’ but will also bear in mind CEBS guidance that disclosure ‘may take the form of a stand-alone report or may be included in the institution’s annual report and accounts’.

Firms should take note of the ‘warning’ in 4.22 of CP10/27.Whilst firms can take advantage of Pillar 3 disclosure exemptions on grounds of materiality or proprietary or confidential information (BIPRU 11.3.6 & 11.3.7), the FSA view such exemptions as unlikely to be applicable to the area of remuneration.

The good news is that a proportionate approach will be taken so BIPRU limited licence and limited activity firms (‘Tier 4 firms’) will only have to disclose basic information on remuneration.

The proposed new rules can be found in Appendix 1 of CP10/27.Firms should also look at Annex 3 which clarifies the FSA’s approach to proportionality, spelling out exactly what a Tier 4 does, and does not, need to disclose.