Which firms are covered?

The FSA Code will apply to:

  • All banks and building societies covered by the definition of credit institutions in Article 4(1) Banking Consolidation Directive; and
  • Investment firms to which the Market in Financial Instruments Directive (MiFID) applies. These firms are those to which the Prudential Sourcebook for Banks, Building Societies and Investment firms apply (ie BIPRU firms). This is a much larger group, including several MTFs, asset managers, hedge fund managers, UCITS investment firms as well as some firms that engage in corporate finance, venture capital, the provision of financial advice and stockbrokers. Note: Exempt CAD Firms are not within scope.


The first issue for any firm to consider is the extent the Remuneration Code, and any other remuneration regulations apply to their remuneration policies. For global firms it is likely that several sets of remuneration regulations will apply. Although it is hoped that the implementation of CRD3 throughout the EU will be consistent, the language within CRD3 is in some places ambiguous. It is highly likely that some regulators may take different interpretations in their implementation of the directive, which may give rise to inconsistencies in how remuneration policies can be implemented locally.

The FSA has specifically mentioned that it does not expect "in scope" firms to set up special group structures or offshore entities or to allow or assist staff to become employed by such structures in order to circumvent the application of the Remuneration Code. If a firm does this the FSA may find the firm to be non-compliant with the general rule which could result in the FSA imposing sanctions, which may include requiring firms to hold additional capital.

This is going to be difficult for them as further regulations are likely to be published for some of those businesses over the next year.

  • For "UK groups", groups whose primary regulator is the FSA, the Remuneration Code will apply to their global remuneration policy and their employees globally. As mentioned in our earlier bulletin this can give rise to uncompetitive remuneration policies in some areas, especially if some key financial centres do not adopt similar policies in line with FSB requirements, in this regard the US and some key Asian centres will be a concern.
  • For these UK global firms they will still have local remuneration regulations to consider in addition to the Remuneration Code. Technically, within the EU the other host member state regulators (ie not the principal regulator) should allow the Home Member State regulator, the UK FSA, to supervise global remuneration policies. However, we expect local regulators nevertheless to find an opportunity of reviewing remuneration policies locally.
  • The FSA has said that the UK groups should apply the Remuneration Code to all their regulated and unregulated entities.
  • Other EU established firms: their Home Member State regulator should be the lead regulator in reviewing and supervising their remuneration policy.
  • Third country global firms: these are firms where they are headquartered outside the EEA, the interaction with the regulators in the EU will depend on their corporate structure. Therefore it is highly likely to be a fairly complex process over the next few months working out the approach of the regulators in the EU and which rules apply.
  • UK subsidiaries of third country groups must apply the Remuneration Code in relation to all entities within the sub group, including entities based outside the UK. For example several firms may belong to a group which includes EEA, Middle East and Africa operations, and therefore staff in those other countries may also be caught by the Remuneration Code. Some third country firms may wish to consider the structure of their EEA operations, especially if it encompasses the Middle East and Africa to restructure the group so that businesses not in the EEA are under the management of a subsidiary outside of the EEA. This will be a complex issue and may have significant implications for EU firm’s regulatory capital obligations.