FCA CP26/27 Remuneration Reform: What Solo-Regulated Firms Should Do Now

On 14 July 2026 the Financial Conduct Authority (FCA) published CP26/27, a consultation proposing to replace the three remuneration codes that currently apply to solo-regulated firms with a single, outcomes-focused code at SYSC 19AA. The proposals would take small and non-interconnected (SNI) MIFIDPRU investment firms and smaller alternative investment fund managers (AIFMs) out of remuneration requirements altogether, and would end mandatory remuneration committees, mandatory malus and clawback, prescribed deferral periods and the MIF008 remuneration return. Nothing has changed yet. These are proposals, the consultation closes on 16 September 2026, and the FCA anticipates publishing a policy statement in Q1 2027.

The firms in scope of the proposed code are full-scope UK AIFMs, UK UCITS management companies and non-SNI MIFIDPRU investment firms. If your firm is one of them, the practical question is not whether to dismantle existing arrangements but whether your governance can carry the weight the FCA proposes to place on it, because the price of less prescription is more documented judgement by the management body. Firms expecting to leave the regime should read the proposals just as closely, since coming out of scope of a code is not the same as coming out of scope of the FCA's expectations on conduct, culture and conflicts of interest.

What the FCA Is Proposing to Change

The current framework grew out of banking regulation and EU reform following the 2008 global financial crisis, and was extended over time to asset managers and investment firms whose business models, risks and incentives are different. Firms have told the FCA that the rules are difficult to apply, that navigating multiple regimes is burdensome, and that they sometimes end up applying the most stringent regime rather than the most appropriate one. The FCA also points out that recent reforms delivered jointly with the Prudential Regulation Authority (PRA) for banks and dual-regulated firms have left some solo-regulated firms facing more prescriptive requirements than firms carrying greater systemic risk.

The consultation runs to 17 questions and a full draft instrument. There are seven main strands to the package:

1. Replacing the AIFM Remuneration Code (SYSC 19B), the UCITS Remuneration Code (SYSC 19E) and the MIFIDPRU Remuneration Code (SYSC 19G) with a single new code at SYSC 19AA.

2. Moving from prescriptive rules to an outcomes-focused framework resting on firm governance and management body judgement.

3. Applying general requirements to all staff, with additional principles applying only to material risk takers (MRTs).

4. Replacing fixed deferral structures with a principles-based requirement, with a threshold-based alternative also consulted on.

5. Retaining malus and clawback as available tools but removing any requirement to apply them.

6. Removing mandatory remuneration committees, the prescriptive annual review, the MIF008 return and the MIFIDPRU 8.6 remuneration disclosures.

7. Narrowing the scope of the regime and the definition of a material risk taker.

   
   

One code in place of three

The new SYSC 19AA would apply a consistent framework across all firms in scope while allowing them to apply it in a way that reflects their size, structure and activities. The general requirements apply to all staff and are recognisable: remuneration policies and practices that promote good conduct and healthy culture, align with the interests of clients, funds and investors, and support sound risk management; policies that are proportionate to the nature, scale and complexity of the business; appropriate governance arrangements to approve, oversee and periodically review those policies; independent objectives for staff in control functions; and measures to avoid conflicts of interest.

The point most likely to be lost in commentary is at paragraph 2.6 of the consultation, where the FCA says that firms already compliant with the existing UK codes, or equivalent European Union codes, should generally expect to remain compliant under the proposed new code. That is a deliberate signal against wholesale redesign.

Deferral: two options, and the FCA has not decided

The FCA's preferred option is principles-based. The management body would decide whether a deferral policy is appropriate at all, and, if it is, would determine the situations in which deferral applies, the proportion deferred, the length of the deferral period, the speed of vesting and whether awards are paid in cash or instruments. The FCA would no longer mandate minimum deferral periods, minimum percentages, cash and instrument splits, vesting schedules or holding periods, and does not propose to prescribe the form of deferral, expressly leaving room for structures such as carried interest.

The alternative option would apply mandatory deferral and a minimum deferral period above specified thresholds, with the principles-based rule applying below them. The FCA raises the possibility of aligning with the thresholds in the remuneration part of the PRA Rulebook, under which firms with total assets below £4bn may disapply requirements on deferral, payment in instruments and retention, and firms between £4bn and £20bn may do so proportionately. It then questions its own suggestion, noting that asset-based thresholds may not translate well to firms where assets under management, revenue or business model are better indicators of risk. This is genuinely open, and the FCA has asked for evidence on which metrics and levels would work. Firms with a view on deferral should say so now rather than after the policy statement.

Malus, clawback, guarantees and severance

Under the proposals, firms must consider whether performance adjustment mechanisms are appropriate where outcomes are inconsistent with their expectations on conduct, compliance or risk management, but applying malus or clawback would not be mandatory. This is a requirement to think and to record the thinking, not a requirement to act.

Guaranteed variable remuneration would be permitted in defined circumstances, primarily on hiring or to compensate for awards forfeited on leaving a previous employer, provided it is time-limited, creates no ongoing entitlement, and remains subject to adjustment, reduction or recovery. Severance payments to MRTs must reflect performance and must not reward failure or misconduct. An anti-avoidance rule prevents firms from paying variable remuneration through vehicles or methods that facilitate non-compliance, including dressing variable pay up as fixed pay while preserving its economic substance.

Governance and reporting: less structure, not less accountability

Three prescriptive requirements would go: the obligation to establish a remuneration committee, the prescriptive annual remuneration review, and the MIF008 remuneration return, together with the remuneration disclosure requirements in MIFIDPRU 8.6. Firms that already run a remuneration committee may keep it.

Read the draft rules carefully before treating this as the end of formal oversight. SYSC 19AA.2.4R still requires appropriate governance arrangements to approve, oversee and periodically review remuneration policies and to ensure they are implemented effectively, and the remuneration of senior officers in control functions must still be directly overseen by the management body or a remuneration committee where one exists. The FCA also expects policies, performance assessment processes and decisions to be documented clearly, consistent with the record-keeping requirements in SYSC 9. What disappears is the prescribed structure and cadence, not the oversight itself.

Who stays in scope and who comes out

Scope changes are the largest single driver of the savings the FCA claims. All 1,665 SNI MIFIDPRU investment firms would come out of the remuneration regime, and the existing tiered MIFIDPRU structure of basic, standard and extended requirements would be replaced by a single framework. UK UCITS management companies remain in scope. For AIFMs the position is staged: full-scope UK AIFMs from commencement, then medium and large UK AIFMs once the wider AIFM reforms take effect under the parallel consultation, CP26/28 on the UK AIFM regime. The FCA estimates that 463 firms currently classified as regular AIFMs would be reclassified as small AIFMs and removed from scope at that point.

The FCA's cost benefit analysis puts total net benefits to firms at a net present value of £290.87m over a ten year appraisal period, with an equivalent annual net direct cost to business of minus £32.01m, against one-off familiarisation and gap analysis costs of around £1.77m across the affected population (FCA, CP26/27, July 2026).

A narrower definition of material risk taker

An MRT would be defined as a staff member whose professional activities or remuneration incentives have a material impact on the firm's conduct towards clients and investors, on the interests of investors, AIFs and UCITS schemes, or on the firm's compliance with its regulatory obligations. Guidance directs firms to the substance of the role and its incentives rather than job title or seniority.

This has a consequence beyond pay. MRT is currently a certification function under the Senior Managers and Certification Regime (SM&CR) at SYSC 27.8.15R, so narrowing the definition would take some individuals out of annual certification unless they hold another certification function. The FCA notes that the Certification Regime is itself under review and that it expects to consult more widely on certification later this year, so this position may move again.

Key Themes

Three messages run through the package. The first is the transfer of responsibility: prescription is being replaced by judgement exercised and evidenced by the management body, which is a lighter regime only for firms whose governance is already capable of carrying it. The second is proportionality by exclusion: rather than tiering requirements, the FCA is simply removing smaller firms from the regime and applying one framework to those that remain. The third is that safeguards are expected to come from elsewhere. The FCA is explicit that it is relying on the wider framework, including high level requirements, SM&CR, the Conduct Rules, the Consumer Duty and supervisory oversight, to manage the risks created by removing prescriptive tools. Firms should read that as an indication of where supervisory attention will fall if remuneration practices go wrong.

Timing deserves its own note. The new rules would come into force the day after the policy statement is published, but would apply only to remuneration for performance periods beginning on or after that date. Draft transitional provision SYSC TP 15 preserves the existing codes for earlier performance periods, and it works by reference to the performance period, not the date of award or payment. Awards paid in 2027 for performance earned earlier would still be governed by the old codes.

What Should Firms Do Now

The proportionate response for most firms is a short, documented review rather than a project. Nothing in CP26/27 requires action before final rules, and firms already meeting the existing codes are unlikely to face significant redesign.

Five steps are worth taking in the next few weeks:

1. Confirm your position under the proposed scope. Establish whether the firm would be a full-scope UK AIFM, a UK UCITS management company or a non-SNI MIFIDPRU investment firm under draft SYSC 19AA.1.1R, and whether the parallel AIFM reforms would change that classification.

2. Decide whether to respond by 16 September 2026. The deferral question is the one where firm-level evidence carries real weight, and the FCA has asked directly which thresholds and metrics would be appropriate.

3. Test whether your governance records would stand up. Under an outcomes-focused code, the board or management body needs a defensible written basis for its decisions on deferral, performance adjustment, the balance of fixed and variable pay and the identification of MRTs. Minutes that record a conclusion without the reasoning are the most common weakness we see.

4. Map the individuals affected by the narrowed MRT definition, and note the knock-on effect for certification under SM&CR before assuming anyone comes out of scope.

5. Diarise the sequencing rather than the rules. The relevant dates are the policy statement expected in Q1 2027, commencement the following day, and the start of your next performance period after that.

   
   

Firms likely to leave the regime should record that conclusion and the reasoning behind it, and should not treat exit as a reason to unwind remuneration governance that supports conduct and Consumer Duty outcomes. Firms expecting to stay in scope have time on their side, and the more useful investment now is in the quality of governance records rather than in redrafting policies against rules that may still change.

Frequently Asked Questions

Does CP26/27 change my firm's remuneration obligations now?

No. CP26/27 is a consultation published on 14 July 2026, not a set of final rules. The existing AIFM, UCITS and MIFIDPRU remuneration codes continue to apply in full until any new rules commence, which the FCA expects to be shortly after a policy statement anticipated in Q1 2027.

Which firms would be in scope of the new SYSC 19AA remuneration code?

The draft rules apply the new code to full-scope UK AIFMs, UK UCITS management companies that manage a UCITS scheme, and non-SNI MIFIDPRU investment firms. For AIFMs the scope would change in two stages, moving to medium and large UK AIFMs once the reforms consulted on in CP26/28 take effect.

Are small and non-interconnected MIFIDPRU firms being removed from the remuneration rules?

Yes, that is the proposal. The FCA proposes to remove all SNI MIFIDPRU investment firms from remuneration requirements, affecting 1,665 firms on its own figures. Those firms would remain subject to the wider Handbook, including SYSC, the Conduct Rules, SM&CR and the Consumer Duty.

Would deferral, malus and clawback still be required?

Not in their current prescribed form. Under the FCA's preferred principles-based option, the management body decides whether a deferral policy is appropriate and sets its terms, with no prescribed minimum periods or structures. Firms would be required to consider whether performance adjustment mechanisms such as malus and clawback are appropriate, but not to apply them. A threshold-based alternative, under which mandatory deferral would apply above specified thresholds, is also being consulted on and no thresholds have been settled.

When does the consultation close and when would the new rules apply?

Responses are due by 16 September 2026. The FCA anticipates a policy statement in Q1 2027, with the new rules coming into force the day after publication and applying to remuneration for performance periods beginning on or after that date. Earlier performance periods stay under the existing codes by virtue of the proposed transitional provision.

How Compliance Angle Can Help

Compliance Angle supports FCA-regulated firms through regulatory change of exactly this kind, and the useful work at this stage is narrow and specific. We help firms confirm their position under the proposed scope, draft or review a consultation response where the firm has a genuine interest in the outcome, and test whether remuneration governance would withstand scrutiny under an outcomes-focused code.

Where firms want support, the relevant services are:

• Regulatory change implementation and horizon scanning, to translate the proposals into the decisions your firm actually needs to take and when.

• Compliance gap analysis and regulatory health checks, to compare current remuneration arrangements against the draft SYSC 19AA requirements.

• Governance, SM&CR and Board advisory support, including the certification consequences of a narrowed material risk taker definition.

• Policy and procedure development, covering remuneration policies, conflicts of interest and record-keeping.

  
  

Our support is proportionate to the firm's business model, permissions, size and regulatory risk. A boutique MIFIDPRU firm coming out of scope needs a short documented assessment, not a framework rebuild, and we will say so. Firms that are also working through FCA authorisation in asset management should factor the proposed changes into how they describe their remuneration arrangements in an application.

To discuss how CP26/27 affects your firm, contact us at info@complianceangle.co.uk.

Source: Financial Conduct Authority, CP26/27: Remuneration: Solo-regulated firms' rules reform, published 14 July 2026. Consultation closes 16 September 2026.