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FCA Publishes Dear Remco Chair Letter for 2022/2023

Yesterday, the FCA published its latest “Dear Remuneration Committee Chair” letter addressed to remuneration committee (Remco) chairs of proportionality level one banks, building societies and PRA designated investment firms.

There are no major surprises in the letter, but firms should take note of the following six focus areas, which the FCA says align with both its expectations and what firms can anticipate in terms of any firm-specific regulatory engagement on the topic of remuneration for the financial year 2022/2023.


The letter makes it very clear that the FCA views remuneration as an important driver of firm purpose, values and long-term strategy.

The letter also details how the FCA sees pay as a key tool by which firms can embed regulatory imperatives such as diversity and inclusion, ESG, operational resilience and individual accountability. As such, there is an ever-increasing emphasis on the requirement on firms to utilise pay adjustments (whether in-year, malus or clawback) to align risk and performance with remuneration outcomes.

In depth

The six areas of focus in the letter are as follows:

  • Culture and accountability: the FCA sees remuneration outcomes as a core tenet of its accountability regime under the SMCR. Remco chairs are responsible for appropriate, timely and transparent adjustments to remuneration where there is evidence of regulatory failure, and there should be a clear, strong link between conduct and remuneration outcomes.
  • The new Consumer Duty: firms’ remuneration policies should be designed to support the expectations set by the new Consumer Duty when it comes into effect.
  • The rising cost of living: the FCA borrows from the UK Corporate Governance Code (which applies to UK premium listed companies) to request that Remco chairs review not only board compensation but also “workforce remuneration and related policies and the alignment of incentives and rewards with culture”. This instruction is made in the context of the cost of living crunch (including spiralling inflation and rising interest rates) affecting consumers and lower income employees.
  • Operational resilience: operational resilience is fundamental to the sound functioning of financial market infrastructures. As such, in addition to learning from operational disruptions, the FCA expects firms to implement remuneration adjustments where appropriate in the event of service disruptions, data breaches or other interruptions.
  • Environmental, Social, Governance (ESG): ESG remains a priority for the FCA. The letter gently encourages firms to consider using remuneration and incentive programmes as a “lever to align incentives with these commitments”. Once again, the FCA’s perception of pay as a way to encourage accountability for key issues comes through, as does a more developed approach on how ESG remuneration metrics and targets may drive such accountability through pay. Reference is made to linking metrics to a “measurable proportion of pay” and considering both short- and long-term targets. Tokenism will not do – if asked, Remco chairs will be required to explain the approach taken to assess outcomes of ESG measures to relevant supervisory contacts.
  • Diversity and inclusion: following on from the FCA’s discussion paper on diversity and inclusion last year, the FCA will consult on a new package of measures later this year. Pending that consultation and its outcomes, the FCA believes that remuneration and incentives have a part to play in supporting diversity in FCA-regulated firms. The FCA says here that Remco chairs have an important role in overseeing the link between performance management frameworks and pay. The letter also suggests that the anticipated FCA diversity and inclusion consultation paper will include remuneration proposals (as trailed in the discussion paper). 

RPS instructions

Finally, the letter provides certain practical instructions for firms regarding this year’s Remuneration Policy Statements (RPS):

  • The due date for their RPS, RPS Annex 1 (performance adjustment) and RPS tables 1a (MRTs list), 2 (dynamic lists) and 8 (MRT notifications and exclusions) for firms with accounting reference dates of 31 December is 31 August 2022. For firms with different accounting reference dates, the RPS should be submitted no later than eight months after the end of the preceding financial year.
  • Firms should also send:
    • A short summary of the key points in the RPS with cross-references to the full RPS, including any key changes made in the last year.
    • An explanation of how the Remco remains assured that the firm’s remuneration policies drive the purpose, long-term strategy and values of that firm, and how the firm holds employees to account if these are not met. This includes taking account of how the current economic environment affects bonus pools and individual outcomes. 
    • Where they exist, details of how the firm’s ESG commitments are linked to its remuneration policy, including metrics and targets.

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