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Dear Chair of the Remuneration Committee | Release Date: 31st October 2023

To read a longer summary of this Dear Chair of the Remuneration Committee letter, click here.

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has sent a letter to the Chairs of Remuneration Committees, emphasising their critical role in aligning remuneration policies with a consumer-centred approach that promotes positive consumer outcomes. This is particularly pertinent given the ongoing economic challenges and cost of living pressures affecting consumers. The FCA notes that it has consistently communicated similar themes in past communications and plans to increase the time between future communications to provide greater consistency in approach.

The letter outlines key areas for consideration in remuneration policies:

Ratio between Fixed and Variable Components: In line with the newly published PS23/15 by the FCA and the Prudential Regulation Authority, there is a push to increase the proportion of at-risk compensation. This aims to provide firms with more flexibility to adjust variable remuneration in response to downturns or instances of poor performance or misconduct.

Consumer Duty Compliance: With the Consumer Duty effective from 31 July 2023 for new and renewing products and services, and from 31 July 2024 for closed book products, firms must ensure their business practices align with these standards, prioritising consumer needs and fair value.

Culture and Accountability: Recent market events underscore the importance of nurturing a healthy corporate culture that promotes effective governance, risk management, and inclusivity. The FCA stresses the need for a clear link between remuneration outcomes and behaviours, advocating for transparent adjustments where necessary.

Diversity and Inclusion (D&I): Following the publication of the consultation paper CP23/20, the FCA continues to expect active engagement in D&I initiatives and adherence to gender-neutral pay policies. It is important for remuneration to be equitable and not discriminatory.

Sustainability in Finance: The letter also touches on the financial sector’s commitments to sustainability, particularly net-zero goals. It is expected that firms will integrate these commitments into their remuneration strategies, ensuring alignment with broader environmental objectives.

The FCA concludes by expecting Remuneration Committee Chairs to integrate these guidelines into their strategies and to communicate their plans for adopting these principles. This letter is part of the FCA’s ongoing engagement with firms and sets the stage for the next standard supervisory cycle.

Key takeaways for the Chairs of the Remuneration Committees include the need to ensure remuneration policies not only comply with regulatory expectations but also actively support and reinforce firm-wide commitments to consumer protection, cultural integrity, and sustainable practices. This involves careful oversight of policy adjustments in response to economic, social, and environmental factors.

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