On July 14, 2026, the FCA published CP26/27, its long-awaited consultation on reforming the remuneration framework for UK solo-regulated firms. The FCA proposes to replace three overlapping, banking regulation-modelled remuneration codes with a single, more proportionate framework. This would move the regime away from detailed rules and towards a more outcomes-focused approach, giving firms more room for judgment while expecting them to evidence why their remuneration structures are appropriate.
The case for change
The current remuneration framework for solo-regulated firms is split across three separate codes covering alternative investment fund managers (AIFMs) (SYSC 19B), UCITS management companies (SYSC 19E), and MIFIDPRU investment firms (SYSC 19G). These rules derive from post-financial-crisis EU reforms that were designed to curb excessive risk-taking in banks and were then extended to asset managers and investment firms despite their materially different business models, risks, and incentives.
The FCA has acknowledged that the rules can be difficult to apply, duplicate requirements and, in some cases, force firms to apply the most stringent regime, even where that is not necessarily appropriate. The case for change is stronger since the relaxation of bankers’ remuneration rules under SYSC 19D, leaving some solo-regulated firms with more prescriptive rules than the bank regime their rules were modelled on. The aim is to reduce complexity and compliance costs for firms, while also supporting the UK’s competitiveness and growth agenda by helping them compete, attract talent, and grow responsibly.
A single, outcomes-focused code
The centrepiece of the reforms is a proposed new Solo-Regulated Firms Remuneration Code (“Code”) in SYSC 19AA, which would replace all three existing codes and revoke the related non-Handbook guidance, leaving firms with a single rulebook. For firms currently subject to overlapping regimes, this should make it considerably easier to operate a consistent remuneration framework.
However, staff of firms within UK banking groups may be subject to the stricter rules under SYSC 19D applicable to dual-regulated firms, which will be retained (along with the related PRA Remuneration Rules).
The FCA proposes to move away from detailed rules towards an outcomes-focused approach that places greater reliance on firms’ governance arrangements and the judgment of their management bodies. This aligns with more principles-based or supervisory approaches to non-bank remuneration in other major jurisdictions. The FCA has been explicit that it does not want to prescribe specific structures unless necessary and accepts that firms may adopt different approaches reflecting their business models and risk profiles.
Reassuringly, firms already complying with the existing UK codes, or equivalent EU codes, should generally expect to remain compliant under the new Code and should not need to redesign arrangements solely because of these changes.
Scope: who is in and who benefits?
The reforms deliberately refocus the regime on firms and staff that pose greater potential risks to consumers and markets.
For MIFIDPRU investment firms, the FCA proposes to remove all small and non-interconnected (SNI) firms from remuneration requirements altogether. The new Code would therefore apply only to non-SNI MIFIDPRU investment firms, with the current tiered (basic, standard, and extended) structure and the concept of “large non-SNI firms” also being removed.
For AIFMs, the new Code would apply initially to full-scope UK AIFMs, transitioning to medium and large UK AIFMs once the parallel AIFM reforms (consulted on in CP26/28) take effect, while UK UCITS management companies would remain in scope throughout. Firms that are not currently subject to a specific remuneration code - such as non-MiFID personal investment firms - will be unaffected.
The new Code would maintain a two-tier approach with core requirements applying to all staff and more targeted requirements applying to material risk takers (MRTs). The FCA expects this to result in a smaller MRT population than under the current regime, as the definition would be narrowed to cover only those whose professional activities or remuneration incentives have a material impact on any of: (i) the firm’s conduct towards clients and investor, (ii) the interests of investors and the AIFs or UCITS schemes, or (iii) the firm’s compliance with its regulatory obligations. However, the last part of that definition is potentially broad in scope (which is compounded by the FCA’s related new guidance on point) and could even expand the scope of staff identified as MRTs. This is an issue that firms may wish to raise in responses to the FCA.
Similarly, new definitions of “staff” and “remuneration” could expand the scope of individuals subject to remuneration rules and the scope of arrangements that are captured. Neither result appears to be the FCA’s intention, but uncertainty in these foundational aspects of the regime is unwelcome and may merit further engagement with the FCA.
Greater flexibility for MRT remuneration
For in-scope MRTs, several of the most prescriptive features of the current regime would be relaxed.
Deferral
This is the headline change. The FCA’s preferred option is a principles-based rule under which a firm’s management body decides whether deferral is appropriate and, if so, determines its structure and duration by reference to the firm’s own business characteristics, such as investor time horizons in fund management, rather than applying uniform regulatory standards.
Crucially, the FCA would no longer mandate minimum deferral periods, fixed percentages, cash/instrument splits, vesting schedules or holding periods, leaving firms free to use structures (including carried interest) that best align with stakeholders’ interests. For firms designing incentive arrangements, this is likely to be the most commercially significant change.
The FCA is also consulting on an alternative threshold-based model under which mandatory deferral would apply to firms above a specified size threshold. One option floated is to align this with the PRA’s proportionality thresholds under SYSC 19D, which currently allow firms with total assets below GBP4 billion to disapply deferral-related requirements and firms between GBP4bn and GBP20bn to disapply them proportionately. The FCA has acknowledged, however, that asset-based thresholds calibrated for banks may not translate well to all solo-regulated firms.
Malus and clawback
Conduct and performance adjustment mechanisms such as malus and clawback would become tools that firms must consider, rather than mandatory features. In appropriate cases, a firm could conclude that no adjustment mechanisms are necessary, having regard to the nature of its business and the risks involved.
Firms should nonetheless still be able to explain how their remuneration arrangements address misconduct, compliance failures, and poor risk outcomes. While they would no longer be mandatory, many firms may still choose to keep clawback provisions along with malus to adjust deferred/unvested pay in their toolkit as best practice features of regulated remuneration schemes.
Guaranteed variable remuneration
Guaranteed variable remuneration would be permitted in specific circumstances, primarily on hiring or to compensate new employees for remuneration forfeited when leaving a previous employer. Awards would need to be time-limited, avoid creating any ongoing entitlement, and remain subject to appropriate adjustment, reduction or recovery. The new Code no longer refers to guarantees being limited to the first year, suggesting greater flexibility for recruitment and retention, including the potential for multi-year guarantees.
Governance and reporting
The FCA proposes to remove several prescriptive governance requirements while retaining its expectations on accountability and oversight. Mandatory remuneration committees and formal annual remuneration reviews would no longer be required, though firms that wish to retain a committee may continue to do so. MIFIDPRU firms would also no longer need to submit the MIF008 remuneration report, and the remuneration disclosure requirements in MIFIDPRU 8.6 would be deleted.
Timing and transitional provisions
The consultation is open until September 16, 2026. The FCA expects to publish final rules in Q1 2027, with the new rules coming into force the day after the relevant Policy Statement (subject to the separate, staged sequencing for AIFMs, which is tied to the wider AIFM reforms). CP26/27 forms part of a broader package consultation on asset management reforms and sits alongside CP26/28 on the UK AIFM regime and CP26/26 on fund reporting, or “FRAME”.
The new Code would apply to remuneration for performance periods commencing on or after publication. For firms with calendar-year performance periods, 2027 remuneration may therefore fall outside the new regime. Prior performance periods would remain subject to the existing codes, meaning firms may need to continue applying existing deferral, malus, clawback, and related reporting obligations to legacy awards for several years after the new rules take effect. In practice, this could create a lengthy period of overlap between the current framework and the new regime.
Next steps
CP26/27 is still a consultation and the final rules may change. Even so, firms should use the consultation window to start mapping the potential impact on their remuneration arrangements and identifying how the proposed flexibilities could be used in practice. Key areas of focus should include:
- Staff and MRT identification: map current staff and MRT populations against the revised, substance-based definitions, with a focus for MRTs on roles that can materially affect client conduct, investor interests, or regulatory compliance. Be ready to justify inclusions and exclusions.
- Deferral design: model what deferral structure, if any, best reflects investor time horizons and risk profile. Consider whether to respond on the FCA’s alternative threshold-based model, particularly if bank-style asset thresholds would produce inappropriate outcomes for the business.
- Malus, clawback, and risk adjustment: decide whether to retain malus and clawback, in whole or in part, as best-practice tools, and review how misconduct, compliance failures and poor risk outcomes would otherwise be addressed. Document the rationale if adjustment mechanisms are considered unnecessary.
- Scope of remuneration: assess arrangements that fall within scope and factor them into remuneration governance, bearing in mind that “remuneration” would remain broadly defined and continue to capture economic arrangements linked to fund performance, such as carried interest, performance fees, and transfers of fund interests benefitting MRTs. Assess whether the new definition of “remuneration” captures any additional arrangements (albeit that this is not the FCA’s intention).
- Governance and accountability: review governance arrangements and record-keeping processes so management bodies can explain and evidence decisions on deferral, risk adjustment, pay design and MRT identification.
- Transition planning: identify how long the current and new regimes will need to run side by side for legacy awards, including existing deferral, malus, clawback, and reporting obligations.
- EU alignment: assess whether UK flexibility could be adopted in practice without creating mismatches against parallel EU requirements, including inconsistent MRT populations or the governance and employee-relations risks of treating MRTs differently across UK and EU remuneration frameworks.
- Consultation response: decide now whether to respond directly or through industry bodies before the consultation closes on September 16, 2026.
If you would like to discuss this or any aspect of the consultation further, please contact your usual A&O Shearman Regulatory, Employment or Incentives contact.
