UK: FCA proposes new remuneration rules for asset managers

Why should I read this?

In July 2026, the FCA published Consultation Paper CP26/27, “Remuneration: Solo-regulated firms’ rules reform”. The FCA proposes replacing the three existing remuneration codes for solo-regulated firms:

• the AIFM Remuneration Code (SYSC 19B);

• the UCITS Remuneration Code (SYSC 19E); and

• the MIFIDPRU Remuneration Code (SYSC 19G),

with a single, consolidated and less prescriptive code (SYSC 19AA).

The reforms move away from detailed, banking-derived rules. The new approach is outcomes-focused and built on firm governance and management body judgement. It narrows the scope of firms and individuals caught by the regime. The consultation is relevant to alternative investment fund managers (AIFMs), UCITS management companies and MIFIDPRU investment firms, and closes on 16 September 2026.

Timothy Fosh, partner in our Financial Services Team, comments:

“These reforms represent a real opportunity for UK asset managers and investment firms to rethink their approach to pay. For the first time, those firms will have the freedom to design remuneration structures that actually reflect their business models rather than having to apply a template developed from the banking industry, which was never designed for them. We encourage every firm in scope to engage with the consultation now and to reach out to us if they need help assessing the impact on their people and associated policies.”

What should I do?

Firms within scope of the AIFM, UCITS or MIFIDPRU remuneration codes should begin assessing the proposals now, both to inform their consultation response and to prepare for the transition to the new regime.

• Review CP26/27

Assess how the proposed single code (SYSC 19AA) and the move to an outcomes-focused approach will affect your firm’s remuneration policies.

• Map your regulatory status

Confirm whether your firm is a full-scope UK AIFM, UCITS management company, or a small and non-interconnected (SNI) or non-SNI MIFIDPRU investment firm. Consider how the proposed scope changes would affect you.

• Reassess your material risk taker population

Consider which staff would meet the narrower proposed material risk taker (MRT) definition. Consider the implications for certification under the Senior Managers and Certification Regime (SM&CR).

• Review deferral, malus and clawback arrangements

Consider whether it would be appropriate to continue to apply deferral, malus and clawback arrangements for MRTs in light of the proposed new code. Respond to the FCA’s questions on the principles-based and threshold-based deferral options.

• Review governance arrangements

Consider whether existing remuneration committees and annual review processes should be retained voluntarily. They will no longer be mandatory.

• Consider responding to the consultation

The consultation closes on 16 September 2026 and we can assist with preparing your response.

• Engage with legal and compliance advisers

Begin planning for implementation ahead of the anticipated Q1 2027 policy statement.

What do I need to know about the FCA’s proposed remuneration reforms?

CP26/27 sits alongside the FCA’s separate consultation on the future AIFM regime, CP26/28 “The UK AIFM Regime”. The two sets of proposals are intended to be read together.

Background

The FCA’s existing remuneration framework for solo-regulated firms derives from banking regulation introduced after the 2008 financial crisis. It was later extended to non-bank firms, including asset managers and investment firms, despite their different business models and risks. Stakeholders have told the FCA that the rules are difficult to apply and can be duplicative. The FCA consider that the rules are unusual by international standards, which tend to favour more principles-based approaches to non-bank remuneration. Recent reforms for banks, building societies and Prudential Regulation Authority (PRA) designated investment firms have further highlighted inconsistencies for solo-regulated firms.

A single, outcomes-focused code

The FCA proposes revoking the AIFM Remuneration Code (SYSC 19B), the UCITS Remuneration Code (SYSC 19E) and the MIFIDPRU Remuneration Code (SYSC 19G), and replacing them with a single new code, SYSC 19AA. The new code will apply general remuneration requirements to all staff. Additional, targeted “remuneration principles” will apply only to MRTs. Firms already compliant with the existing UK codes, or equivalent EU codes, should generally expect to remain compliant with the new code, although firms will need to review their governance documentation to reflect the change in structure.

Scope changes

The new code will apply to full-scope UK AIFMs initially with medium and large UK AIFMs coming into scope once the FCA’s wider AIFM reforms take effect. It will continue to apply to UK UCITS management companies. For MIFIDPRU investment firms, the FCA proposes removing SNI firms from remuneration requirements entirely, so that the new code applies only to non-SNI firms. The FCA proposes removing the existing tiered (basic/standard/extended) structure in favour of a single framework.

Material risk takers

The FCA proposes narrowing the definition of “material risk taker”. Under the new definition, an MRT is a staff member whose activities or remuneration incentives have a material impact on the firm’s conduct towards clients and investors, the interests of investors, AIFs or UCITS schemes, or the firm’s compliance with its regulatory obligations. Some individuals who currently qualify as MRTs solely on a role-based basis may fall out of scope, which would affect their status as a certified person under the SM&CR, unless they perform another certification function.

Deferral, malus and clawback

The FCA proposes moving away from mandatory deferral, malus and clawback requirements. 

On deferral, its preferred option is a principles-based rule under which a firm’s management body decides whether, and how, to apply deferral to MRTs’ variable remuneration. There will be no prescribed minimum periods, cash/instrument splits, vesting schedules or holding periods. As an alternative, the FCA is consulting on a threshold-based option, under which mandatory deferral (potentially aligned to the asset thresholds used in the PRA Rulebook) would continue to apply to larger firms. 

Malus and clawback would remain available tools, but firms would only be required to consider whether to apply them. Guaranteed variable remuneration would be simplified, remaining permissible in limited circumstances (principally on hiring), subject to time limits and to the firm’s normal risk-adjustment tools.

Governance and reporting

The FCA proposes removing the requirement to maintain a mandatory remuneration committee and the requirement to carry out a formal annual independent remuneration review. General governance and oversight expectations will be retained. For MIFIDPRU firms, the FCA proposes revoking the MIF008 remuneration reporting template and the MIFIDPRU 8.6 remuneration disclosure requirements. The FCA considers that these contribute little to risk management or conduct outcomes relative to their operational burden. The FCA proposes revoking related non-Handbook guidance, including the general guidance on the AIFM Remuneration Code and FG23/6 on ex-post risk adjustment.

Cost benefit analysis

The FCA estimates that the reforms will deliver material reductions in compliance costs. The savings are driven primarily by removing smaller firms from scope and simplifying the framework. The FCA acknowledges that reducing prescriptive requirements could increase the risk of weaker alignment between short-term incentives and longer-term outcomes at some firms. It considers this risk manageable given the wider regulatory framework, including the SM&CR, the Conduct Rules and the Consumer Duty.

Timing

Subject to feedback, the FCA anticipates publishing a Policy Statement and final rules in Q1 2027, taking effect the day after publication (other than for AIFMs). The new code will apply to remuneration relating to performance periods beginning on or after that date. For AIFMs, the code will apply in two stages:

• first to full-scope UK AIFMs; and
• subsequently to medium and large UK AIFMs once the FCA’s wider AIFM reforms take effect.

How does this fit with other developments?

CP26/27 forms part of a wider programme of remuneration reform in the UK. In October 2025, the PRA and FCA published joint Policy Statement PS21/25 “Remuneration Reform”, which made final rules reforming the remuneration regime for dual-regulated firms (banks, building societies and PRA-designated investment firms). PS21/25 followed consultation paper CP16/24 and went further than the original proposals in several respects. The regulators reduced the minimum deferral period for all MRTs (including Senior Management Functions) to four years, introduced a marginal deferral rate (40% on the first £660,000 of variable remuneration, 60% above), and gave firms greater flexibility over the cash/instrument split in upfront pay.

PS21/25 simplified MRT identification by moving to a single quantitative threshold (the top 0.3% of earners) and removed the need for firms to seek PRA approval to exclude individuals. It raised the individual proportionality threshold to £660,000 total remuneration (with variable pay no more than 33% of total), allowing firms to disapply certain rules (such as deferral) for MRTs below that level. The regulators removed the “higher paid MRT” and “significant firm” categories entirely. New rules strengthen the link between individual accountability and remuneration by requiring firms to consider adjusting pay for MRTs up the management chain after adverse risk events. The FCA restructured SYSC 19D to cross-refer to the PRA Remuneration Rules, so dual-regulated firms now look to a single set of substantive requirements.

The SM&CR is itself under review. In April 2026, the FCA and PRA confirmed phase 1 reforms to streamline the regime. These reduce the total number of certification roles by around 15%, raise enhanced firm thresholds by 30%, and give firms more time to submit senior manager applications. The Government has proposed further changes, including removing the Certification Regime from legislation and reducing the number of roles requiring regulatory pre-approval. The regulators plan to consult on wider changes later in 2026 as part of the Leeds reforms to halve the SM&CR’s regulatory burden.

Taken together, these reforms represent a coordinated move by UK regulators to simplify remuneration and accountability rules. For solo-regulated firms, CP26/27 proposes removing banking-derived prescriptive requirements. For dual-regulated firms, PS21/25 has already delivered shorter deferral, simpler MRT identification and stronger accountability. For both categories of firm, the SM&CR reforms reduce the certification burden. The regulators are consistently promoting greater reliance on firm governance and management body judgement, with proportionality determined by firm size and risk profile.

Our view

These proposals represent a significant simplification of the FCA’s remuneration framework for solo-regulated firms. They reflect a broader shift towards outcomes-focused, judgement-based regulation. Many firms will welcome the reduction in prescriptive requirements and associated costs. Smaller AIFMs and SNI MIFIDPRU firms taken out of scope entirely will benefit the most. However, the shift towards management body judgement, particularly on deferral, malus and clawback, will place a greater burden on firms’ governance frameworks. Firms will need to demonstrate that remuneration outcomes remain aligned with client and investor interests. We expect the choice between the principles-based and threshold-based deferral options to attract significant feedback during the consultation, as will the practical application of the narrowed MRT definition.

Paul Fontes, Head of our Employment Team, comments:

“The move to a principles-based approach gives firms real flexibility to design remuneration structures that are properly aligned to the management of the risks inherent in their businesses, rather than forcing asset managers and investment firms into a framework built for banks. Firms should think carefully now about which individuals they will treat as material risk takers under the narrower definition, what that means for their SM&CR certification obligations and whether to continue applying deferral and malus/clawback arrangements. We would welcome a conversation with any firm that wants to map the impact of these proposals on their workforce and governance arrangements.”

Next steps

The consultation closes on 16 September 2026. The FCA will consider all feedback before publishing a Policy Statement with final rules, anticipated in Q1 2027. 

How Eversheds Sutherland can help

Eversheds Sutherland advises AIFMs, UCITS management companies and MIFIDPRU investment firms on remuneration structuring, governance and regulatory change. We can help you assess the impact of CP26/27 on your remuneration policies and MRT population. We can review deferral, malus and clawback arrangements, update governance documentation, and prepare your response to the consultation.