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Some IFAs to fall under FSA’s new Remuneration Code

The FSA has today announced plans to extend the scope of its Remuneration Code to include financial advisers that have permission to handle client money.

The FSA says its new rules are required by the Capital Requirements Directive, which is currently being developed by the EU and will come into force on January 1, 2011.

The directive, CRD3, will bring 2,500 firms within the scope of the Code, including all banks and building societies, asset managers, hedge fund managers, Ucits investment firms and some firms that engage in corporate finance, venture capital, the provision of financial advice and stockbrokers.

However, the majority of IFAs are expected to be unaffected by the code.

Association of Independent Financial Advisers policy director Andrew Strange says: “Our preliminary view is that UK IFAs without FSA-permissions to hold client money fall outside of scope. The vast majority of IFA firms will therefore not be in scope of the Code.

“Advisory firms that do hold client money permissions appear to be in scope. Aifa is seeking clarification from FSA on this and feels that the Code is
not necessarily appropriate for smaller IFA firms.”

An FSA spokeswoman was unable to confirm how many IFAs will fall within the scope of the Code.

Under the rules at least 40 per cent of a bonus must be deferred over a period of at least three years for all staff that have a “material impact on a firms’ risk profile”. At least 60 per cent must be deferred when the bonus is more than £500,000.

At least 50 per cent of any variable remuneration components must be made in shares, share-linked instruments or other equivalent non-cash instruments of the firm. These shares will need to be subject to a minimum retention policy.

Firms must not offer guaranteed bonuses of more than one year. Guarantees may only be given in exceptional circumstances to new hires for the first year of service.

Firms must ensure their total variable remuneration does not limit the ability to strengthen their capital base. Total variable remuneration must be significantly reduced in circumstances where the firm produces a subdued or negative financial performance.

A new rule will be introduced which defines instances where breaches of the code may render a contract void and/or require recovery of payments made.

Severance payments should reflect performance over time and failure must not be rewarded and CRD3 states that enhanced discretionary pension benefits should be held for five years in the form of shares or share-like instruments.

The consultation period closes on October 8, 2010. The FSA intends to issue a policy statement in November 2010 with rules effective from January 1, 2011.


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  1. Whilst the rest of us fall under the wheels of the FSA juggernaut.

    On a separate note, I wonder if those FSA logos will be auctioned off as collectors’ items, a bit like steam locomotive nameplates. God knows the FSA probably blew a small fortune commissioning their design and fabrication, even though all they actually look like is a bowl of spring bulbs rotated through 45 degrees.

    Amazing what you can get away with when your prospective customer has abundant amounts other peoples’ money to spend.

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