Are Level 3 FS firms ready for IFD/IFR & IFPR?

Summer next year may feel like a lifetime away given how long 2020 seems to have lasted so far, but it will be on us in a flash and if you’re running HR and Reward in a Level 3 Financial Services firm who up until now has been able to disapply the multitude of CRD IV (soon to be V) pay regulations you will need to start considering whether that will still be the case.

New EU (IFD/IFR) and UK (IFPR) regulations will be putting in place new measures that may require many Level 3 firms to comply with the pay regulations that the Level 1 & 2 firms have been adhering to for many years.

Put as simply as I can (if such a complex situation could ever be made simple) based on my understanding at this point, if your firm currently is:

• a standalone organisation, not part of a larger group already caught by CRDIV pay regulations;
• regulated under BIPRU SYSC 19C;
• with controlling assets below < ￡15bn (in previous years this cap was <￡50bn); and
• have applied for and been granted dispensation by the regulators to disapply the pay regulations currently applicable to Level 1 & 2 firms;

then it is likely that you will need to begin to incorporate mandatory deferral percentages, vesting periods, malus & clawback into your Reward strategy for your Material Risk Takers by summer next year in adherence to regulations that you’ve previously been able to ignore (or, rather, “disapply”).

This is not just a tick box exercise, it’s one of highly nuanced communications which impact directly your current and future senior population (and of course the recruitment of such people). These changes, if applicable to you, are not insignificant and will need careful and ongoing management.

At the very least you should get legal counsel from remuneration regulation specialists and/or in-house counsel as to whether these new regulations impact you.

If you are in one of these organisations I'd love to hear