Executive Summary
- What’s new: On 14 July 2026, the FCA published proposals to revoke the AIFM, UCITS and MIFIDPRU remuneration codes and related guidance, replacing them with a single code for all solo-regulated firms.
- Why it matters: These changes would impact all FCA solo-regulated firms as well as existing FCA supervised MIFIDPRU consolidation groups. We expect firms will welcome the reforms as a shift to a more proportionate regime that would allow for greater autonomy and exercising of management body judgment in applying the regime to their firms.
- What to do next: In-scope firms should review the proposals to assess the impact on their operations and consider responding to the FCA’s consultation by the deadline of 16 September 2026, in particular in relation to the options the FCA has proposed for the operation of variable remuneration deferral mechanisms.
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On 14 July 2026, the UK Financial Conduct Authority (FCA) published CP 26/27, setting out proposals to overhaul the regulatory remuneration framework for solo-regulated firms. The FCA proposes to revoke the existing remuneration codes for investment firms (SYSC 19G: MIFIDPRU Remuneration Code), alternative investment fund managers (SYSC 19B: AIFM Remuneration Code) and UK Undertakings for Collective Investment in Transferable Securities (UCITS) management companies (SYSC 19E: UCITS Remuneration Code), along with the related guidance, and replace them with a single, unified code (SYSC 19AA).
These proposals are intended to simplify the regime, and are a deliberate shift by the FCA away from the existing prescriptive rules to a more outcomes-focused framework that would allow managing bodies of regulated firms to exercise more discretion in applying the framework to their operations.
Key Proposals
Scope of the Regime
Similarly to the current MIFIDPRU rules, the new code would impose general remuneration requirements on all “staff,” with additional obligations applying to “material risk takers.” The definition of “staff” remains broad, capturing all persons working for the regulated firm, which would capture secondees, partners and group contractors/service providers. As for the current regimes, the new code is not intended to apply to small and non-interconnected (SNI) MIFIDPRU investment firms or sub-threshold AIFMs.
Group Application
A welcome development is the absence of any group application provisions in the proposed code. Under the current MIFIDPRU regime, MIFIDPRU consolidation groups are required to apply UK FCA remuneration standards to all entities within the consolidation group, regardless of jurisdiction or regulated status, as if the group were a single firm. The new approach would instead apply the code only on a solo basis to the relevant in-scope regulated firm. This change is expected to substantially reduce the compliance burden on existing and future FCA-supervised MIFIDPRU consolidation groups.
Material Risk Takers
The FCA proposes to introduce a new definition of material risk taker (MRT). Under the new regime, an MRT would be defined as: “a staff member at a solo-regulated firm whose professional activities or remuneration incentives have a material impact on the following: (a) the solo-regulated firm’s conduct in relation to its clients and investors; (b) the interests of the investors, the AIFs and the UCITS schemes; or (c) the solo-regulated firm’s compliance with its obligations under the regulatory system.”
The FCA has stated that it considers the new definition to be narrower, and that it expects this to reduce the number of staff subject to the additional MRT remuneration requirements in the new code as compared to the current regimes. However, the new definition is still broad and firms would have to carefully consider — and ensure they have documented their analysis of — whether any existing MRTs are able to be considered out of scope of the definition under the new regime.
Deferral
Under the current regimes, a portion of variable remuneration must be deferred for at least three years with the aim of aligning pay with longer-term performance and risk. The FCA has indicated that it recognises that this may not always suit solo-regulated firms, and so is consulting on two proposals to reform deferral requirements:
- FCA’s Preferred Option: Principles-Based Deferral Rule
- The FCA’s preference is to introduce a principles-based requirement for firms to apply deferral to MRTs, if the management body deems it appropriate for the firm’s remuneration practices to include a policy on deferred variable remuneration.
- The FCA would no longer prescribe minimum deferral periods, percentages or the structure of deferred compensation, and instead firms’ management bodies would be given the flexibility to determine this based on their own business considerations.
- Alternative Option: Threshold-Based Deferral Rule
- Under this option, the FCA could instead apply mandatory deferral rules and a minimum deferral period to firms above specified thresholds (which would be a threshold applicable in an existing regulatory framework, potentially the thresholds in the dual-regulated remuneration code).
- Firms below the specified threshold would only need to apply the principles-based deferral rules set out at option 1.
In-scope firms should assess which option would be preferrable for the operation of their businesses, and consider submitting consultation responses on this point for the FCA to consider as they finalise the rules.
Malus and Clawback
The existing rules on malus and clawback will also be revoked. The FCA proposed that firms would instead need to consider whether it is appropriate to include performance adjustment mechanisms (such as malus or clawback) to support good conduct, compliance and risk management expectations, but these would not be mandatory.
Governance, Reporting and Disclosure
The new regime would remove the current requirements mandating firms to establish a remuneration committee and to conduct formal annual remuneration reviews. Instead, the FCA would expect firms to ensure appropriate governance and oversight as part of the wider operation of their systems and controls.
In addition, the existing MIFIDPRU remuneration reporting and disclosure requirements would be revoked and would not be replaced with comparable provisions under the new regime. The FCA has concluded that this information is no longer necessary to support effective supervision of firms.
Next Steps
The consultation closes on 16 September 2026. These reforms are expected to be welcomed by firms as delivering a simplified and more proportionate framework than the existing regime; as such, firms should consider whether they wish to respond to the consultation on this basis.
Final rules are then expected in Q1 2027, with entry into force shortly thereafter. The implementation timeline is partially dependent on the outcome of the FCA’s separate consultation on reforms to the UK AIFMD.
The FCA is expected to include a transitional period in the new regime for performance periods that are currently subject to the existing remuneration rules, whereby these would continue to be subject to the current regimes until the end of the applicable performance period.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Sebastian J. Barling, Partner, Skadden
sebastian.barling@skadden.com
