Chair of Remuneration Committee at FCA Firms

The Chair of the Remuneration Committee at an FCA-regulated firm holds one of the most technically demanding committee chair roles in financial services governance. Where the firm is dual-regulated or an FCA enhanced firm, the role is a designated Senior Management Function, SMF12, and it carries personal accountability for the firm’s remuneration governance. That governance area is subject to detailed FCA and PRA rules, commercially sensitive in ways that put pressure on committee independence, and technical enough that the Chair needs a working grasp of remuneration code provisions most non-executive candidates have never had to engage with in depth.

Even so, SMF12 appointments often receive less attention from nomination committees than the Chair (SMF9), the Audit Committee Chair (SMF11) or the Risk Committee Chair (SMF10). That is a governance mistake. Pay is where incentives, risk appetite and conduct meet, and a weak remuneration committee tends to show up in the regulator’s view of the whole board. This guide covers what the SMF12 designation means, which remuneration rules the Chair must understand, how the rules have changed since the bonus cap was removed, what the current SM&CR consultation proposes for the role, and what a strong candidate looks like. If you are already running a search, our remuneration committee chair recruitment service sets out how we approach these appointments.

The SMF12 Designation: What Personal Accountability Means for Pay Governance

The SMF12 holder is personally accountable for the firm’s remuneration governance. Under the Duty of Responsibility, if a remuneration governance failure occurs within the committee’s remit — an award structure that does not comply with the applicable remuneration code, a performance assessment that does not reflect risk-adjusted outcomes, a deferral arrangement applied incorrectly — the SMF12 holder must be able to show they took reasonable steps to prevent it. This is not only the committee’s collective accountability. It is the Chair’s own regulatory exposure.

That changes the character of the appointment. The Chair is not simply a capable governance professional who happens to run the pay committee. They are a senior manager with a personal regulatory record that the FCA and, at dual-regulated firms, the PRA will assess on its own terms — through supervisory meetings, the approval process and, if a failure is serious enough, enforcement. Nomination committees that treat SMF12 as a governance role with a remuneration specialism attached are underestimating its regulatory weight.

Personal accountability is set out in practice through the Statement of Responsibilities. The firm must describe what the SMF12 holder is responsible for, and that document becomes the yardstick against which the Chair’s conduct is later judged. Boards should draft it with care: too vague and it gives no protection to the individual; too broad and it pulls executive responsibilities onto a non-executive. Our guide to Statements of Responsibilities and board appointments covers what boards should settle before an SMF is appointed.

It also matters which firms the designation applies to. SMF12 is required at dual-regulated firms — banks, building societies, PRA-designated investment firms and, where required, insurers — and at FCA enhanced firms that must have a remuneration committee. A core SM&CR firm, such as most smaller MIFIDPRU investment firms, may still have a remuneration committee and a chair of it, but that person does not hold SMF12. The governance standard expected is still high; the formal designation and pre-approval are what differ.

The Applicable Remuneration Code: What the Chair Must Understand

The remuneration rules that apply depend on the firm’s regulatory category. FCA solo-regulated investment firms are subject to the MIFIDPRU Remuneration Code (SYSC 19G). Banks, building societies and PRA-designated investment firms are subject to the Dual-regulated firms Remuneration Code in the FCA Handbook alongside the PRA’s Remuneration Part of its Rulebook and supervisory statement SS2/17. Insurers apply the Solvency II remuneration requirements. UCITS management companies and AIFMs have their own remuneration codes. Each sets different requirements on deferral, payment in instruments, malus and clawback, and the identification of material risk takers.

The Chair needs enough working knowledge of the code that applies to their firm to judge whether a proposed structure is compliant, not just whether it is commercially sensible. An SMF12 Chair who cannot explain the difference between the MIFIDPRU basic, standard and extended requirements, who cannot test whether a deferral structure meets the minimum period, or who does not know which malus triggers the firm’s policy must contain, is not meeting the standard the regulators expect.

This does not mean the Chair must be a reward lawyer. It means they must know enough to ask the right questions of the reward team, the risk function and external advisers, and to recognise when an answer does not hold up. In practice the strongest chairs keep a short reference of the key code requirements for their firm, review it each year against rule changes, and make sure the committee’s terms of reference reflect the current rules rather than the rules in force when the terms were last drafted.

• Scope. Which staff are material risk takers, and has the identification exercise been run properly this year?
• Structure. Do the proportions of fixed and variable pay, deferral and instruments meet the code for each category of staff?
• Adjustment. Are malus and clawback triggers clearly defined, and is there a working process to apply them?
• Disclosure. Does the firm’s public and regulatory reporting on pay match what the committee actually approved?

How the Remuneration Rules Have Changed for Banks and Investment Firms

Any Chair appointed now inherits a rulebook that has moved a long way from the post-crisis settlement. The first step was the removal of the bankers’ bonus cap. The PRA and FCA removed the cap on the ratio between fixed and variable pay with effect from 31 October 2023, set out in the PRA’s PS9/23 and the FCA’s parallel PS23/15. Firms are instead expected to set their own appropriate ratios and to justify them. That moved a judgement that used to be fixed in the rules onto the remuneration committee.

The second step came in October 2025, when the regulators published joint policy statements on remuneration reform: the PRA’s PS21/25 and the FCA’s PS25/15. The changes came into force on 16 October 2025 and apply to performance years starting after that date, with some deferral changes available on an optional basis for the year then in progress and for unvested earlier awards. The main points for a remuneration committee are:

• Deferral. A four-year minimum deferral period now applies to all relevant material risk takers, including senior managers, replacing the longer periods that applied to the most senior staff.
• Deferral rates. Deferral is applied on a marginal basis — 40% of a bonus deferred up to £660,000 and 60% above that level, according to the PRA’s policy statement.
• Instruments and retention. The requirement for an equal cash and instrument split across upfront and deferred pay has gone. A one-year retention period still applies to upfront instruments, but firms are not expected to set retention on deferred instruments.
• Interest and dividends. Firms may pay interest or dividends on deferred remuneration.
• Identifying material risk takers. The quantitative criteria have been simplified, and firms no longer need regulatory approval to exclude individuals identified only on quantitative grounds.

Greater flexibility means more decisions sit with the committee. With fewer hard limits in the rules, the Chair must be able to explain why the firm’s chosen ratios, deferral design and instrument mix are appropriate for its risk profile. That is a test of judgement, and it raises the bar for the role rather than lowering it. Firms in scope of the MIFIDPRU code should also watch for the FCA’s separate work on the investment firm and asset manager remuneration regimes, and the Chair should make sure the committee’s advisers track it.

Variable Pay, Deferral and Malus: The Chair’s Technical Obligations

The practical work of the Remuneration Committee Chair centres on three recurring technical areas. The first is variable pay design: judging whether proposed incentive structures for material risk takers and senior managers comply with the applicable code and are calibrated to risk-adjusted rather than gross commercial performance. The second is deferral compliance: making sure the proportion of variable pay deferred, and the deferral period, meet the code for each category of staff in the committee’s remit — now including the four-year minimum for relevant material risk takers at banks and PRA-designated firms. The third is malus and clawback governance: making sure the firm’s policies are sound, that trigger events are clearly defined, and that the committee has a credible process for deciding whether to apply them when a trigger occurs.

Malus is where remuneration governance is most often found wanting. A firm that has experienced conduct failings, risk management breaches or material misstatements, yet has never reduced anyone’s variable award, is showing in practice that its malus governance exists on paper only. The SMF12 Chair is the person primarily accountable for making sure that does not happen, and the regulators expect to see evidence that adjustment decisions are considered on their merits, recorded properly and followed through.

Risk adjustment should not start at the year-end bonus meeting. Strong committees agree in advance how risk, compliance and conduct outcomes will feed into the pool and into individual awards, ask the risk and compliance functions for formal input, and record how that input changed the outcome. Where it did not change the outcome, the minutes should say why. That record is what protects the Chair if the regulator later asks whether reasonable steps were taken.

Deferral also affects hiring. When a firm recruits a senior manager from a competitor, the candidate will often forfeit unvested deferred awards, and the new employer may be asked to buy them out. Buy-outs fall within the remuneration rules at regulated firms and can carry malus and clawback exposure of their own. Our guide to buying out deferred compensation in senior lateral moves sets out what committees should check before agreeing one.

Independence and the Chair’s Relationship with Management

Committee independence from management is not simply a governance principle; at regulated firms it is a regulatory requirement. The committee must be made up of non-executives with the independence to reach their own conclusions, and the Chair must be genuinely independent and be seen to be so by the regulators, by staff and by any investors who scrutinise the firm’s pay decisions.

In practice independence is most easily eroded through information and agenda. A CEO who presents pay proposals in a way that makes compliance look straightforward, who does not give the committee independent expert advice as a matter of course, or who controls the committee’s access to the risk function’s input on performance is undermining independence through information control rather than direct pressure. The Chair is responsible for recognising this and stopping it. That takes both the governance experience to see how independence can drift and the confidence to manage the relationship with the CEO from a position of real authority.

Several practical habits help. The Chair should set the committee’s agenda, not inherit it from HR. The committee should appoint its own remuneration adviser and hear from that adviser without management in the room. Papers should arrive early enough to be read and challenged. And the Chair should hold regular one-to-one conversations with the Chief Risk Officer and the head of compliance, not only with the CEO and the HR director. The CRO’s independence and the way the risk function itself is paid are closely linked; see our article on the SMF4 Chief Risk Officer function and why independence defines it.

The Remuneration Committee at Dual-Regulated Firms

At banks, building societies and insurers regulated by both the FCA and the PRA, the Remuneration Committee Chair’s role is more demanding than at solo-regulated firms. The PRA’s rules and SS2/17 add a prudential layer to the FCA’s conduct focus, and the committee must work within both when designing and reviewing pay for the senior population. The PRA pays particular attention to how the CRO and other risk function leaders are paid — whether their pay supports independence from the business lines they oversee rather than creating incentives to align with them.

The SMF12 Chair at a dual-regulated firm should expect to engage directly with the PRA on pay. The regulator may request information about remuneration arrangements, ask the firm to justify specific structures, or require changes to arrangements it considers inconsistent with sound risk management. The Chair’s ability to explain and defend the committee’s decisions, rather than deferring to management or legal advisers, is part of how the PRA forms its view of the quality of the firm’s pay governance.

Group structures add another layer. Where a UK subsidiary sits within an international group, the group’s global pay framework may not map neatly onto UK rules, and the UK committee must be prepared to apply local requirements even where that creates friction with the parent. A Chair who has handled that tension before — at a UK bank subsidiary of an overseas group, for example — brings experience that is hard to replicate through training.

What Makes a Strong SMF12 Candidate

The candidate profile for an SMF12 appointment has three required dimensions. The first is remuneration expertise: direct experience of pay governance at a regulated firm, as a board member, a remuneration adviser, or an executive with senior HR or reward responsibility in a regulated business. That expertise must be specific. A non-executive with broad financial services governance experience but no real engagement with remuneration code requirements has not shown the technical competence the role demands.

The second is regulatory credibility: a record of operating well in a supervisory setting, ideally with a prior SMF approval that has established a sound relationship with the regulator. A candidate with no previous approval history is a first-time applicant, and the regulator will want to understand their grasp of SMF12 obligations specifically — including their knowledge of the applicable code and their approach to keeping the committee independent.

The third is independence: real independence from management, from the CEO and from the firm’s principal investors. A candidate with close personal or commercial ties to the senior team will face scrutiny in the approval process and practical difficulty in the chair. Nomination committees should test independence properly rather than treating it as satisfied by the absence of formal conflicts. The SMF13 Chair of the Nominations Committee usually leads this assessment; our SMF13 Chair of Nominations Committee hiring guide covers that role.

Beyond those three, look for temperament. The best remuneration chairs are calm under pressure from executives who feel strongly about their own pay, willing to say no, and able to explain a difficult decision to staff and investors without becoming defensive. In interview, ask for specific examples: a time the candidate reduced an award on risk grounds, a structure they rejected as non-compliant, a disagreement with a CEO they resolved without the committee losing credibility. Our guide on how to hire a non-executive director covers the wider assessment process.

Where strong candidates come from

Good SMF12 candidates tend to come from a small number of backgrounds: serving or former remuneration committee chairs at other regulated firms; former reward directors or chief people officers at banks, insurers or large asset managers who have moved into non-executive work; senior partners from remuneration consultancies or employment law practices with regulated-firm clients; and experienced chairs or senior independent directors who have built genuine pay expertise over several board terms. Each brings different strengths, and the right choice depends on the firm’s size, complexity and the other skills already on the board. Our financial services non-executive recruitment work draws on all of these pools.

Working with Exec Capital

Exec Capital places Remuneration Committee Chairs at regulated firms across the market — dual-regulated banks and insurers, FCA enhanced firms, MIFIDPRU investment firms, and UCITS and AIFM firms with their own remuneration obligations. We assess candidates against all three dimensions of the profile above and build support for the SMF approval process into the assignment. Where the appointment sits within a wider board refresh, we can run it alongside other board of directors recruitment, so the committee chairs complement one another rather than being chosen in isolation.

Every search is run by our specialist team, with Adrian Lawrence FCA overseeing each mandate. To discuss an SMF12 appointment, call 0203 834 9616 or see our Chair of Remuneration Committee (SMF12) service page.

The SMF12 Appointment Process: Form A and the Regulatory Interview

Approval for an SMF12 holder currently follows the same structure as other Senior Management Functions: the Form A application, personal disclosures, regulatory references from previous regulated employers, criminal records and other background checks, and the firm’s own fitness and propriety assessment. For SMF12 candidates the competence assessment focuses on their understanding of the remuneration rules that apply to the firm and their experience of pay governance in a regulated setting. A candidate with strong general governance credentials but little specific remuneration knowledge may face challenge that a specialist would not. Timescales vary; our guide on how long FCA SMF approval takes gives a realistic view.

An interview with the regulator is more likely at larger or more complex firms, particularly where the PRA is involved. It will typically explore the candidate’s understanding of the applicable deferral and malus requirements, their approach to committee independence, and their record of real challenge rather than ratifying management proposals. Candidates who have chaired committees that applied malus, who have required structural changes to awards on compliance grounds, or who have led a committee through a significant pay governance problem are better placed than those whose experience has been mainly procedural.

Exec Capital supports SMF12 candidates through approval preparation as part of each regulated-firm Remuneration Committee Chair search. That includes a briefing on the regulators’ current supervisory approach to pay governance, a review of the specific remuneration rules applicable to the firm, and preparation for an interview if one is expected. Preparing candidates properly gives the firm the best chance of a smooth approval and a good first impression with its supervisor. For the wider picture of how the regime shapes board hiring, see what the Senior Managers Regime means when recruiting at board level.

Proposed SM&CR Changes and the SMF12 Role

The approval process may change. In October 2026 the FCA published CP26/37, the second phase of its SM&CR review, and the PRA published a parallel consultation. Among other things, the regulators propose that a number of non-executive SMFs at dual-regulated and enhanced firms should become notified roles rather than roles that need pre-approval. On the FCA side the list covers SMF10 to SMF15, including SMF12; the PRA’s proposed list also includes the Chair of the Remuneration Committee. Both consultations close on 22 January 2027, and parts of the package depend on changes to primary legislation.

These are proposals, not final rules. Until the regulators publish policy statements, SMF12 remains a pre-approved function and firms should plan appointments on that basis. Even if the proposals are adopted, the practical effect would be on the approval step, not on the standard. A notified SMF12 would still be personally accountable, would still need a Statement of Responsibilities, would still be subject to the conduct rules and the Duty of Responsibility, and the firm would still have to be satisfied that the person is fit and proper. If anything, moving to notification puts more weight on the firm’s own assessment and the quality of the search, because the regulator’s pre-approval would no longer act as a check before the person takes up the role.

Listed Firms and the UK Corporate Governance Code

Where the regulated firm, or its parent, is listed in the equity shares (commercial companies) category, the Chair must also work within the UK Corporate Governance Code 2024, which applies to financial years beginning on or after 1 January 2025. Its remuneration provisions sit alongside the regulatory rules rather than replacing them. Provision 37 expects directors’ contracts and other remuneration agreements to include malus and clawback provisions, and Provision 38 asks the annual report to describe those provisions, the circumstances in which they can be used, the minimum period over which they apply and whether they were used in the year. The Code also expects long-term incentive awards to be phased and to support a long-term focus.

For a listed bank or insurer, this means the remuneration committee has two audiences for the same decisions: the regulators, who are interested in prudence and conduct, and shareholders, who vote on the remuneration policy and report and are interested in alignment with performance. A Chair with listed-company experience will know how to consult major investors before a policy vote, how to handle a significant vote against, and how to write a remuneration report that explains decisions plainly. Our article on what every NED should know about UK corporate governance reform covers the wider Code changes.

Remuneration Governance and the Board’s Broader Culture

The quality of a regulated firm’s remuneration governance is a good proxy for the quality of its board culture more widely. A committee that works with real independence, applies the code rigorously and uses malus and clawback when it should is showing a culture that takes regulatory requirements seriously, protects the independence of oversight functions and does not let commercial pressure override obligations. A committee that ratifies management proposals without real scrutiny, and has never applied malus despite conduct issues, is showing a culture that regulators are likely to view as weak in other areas too.

The SMF12 Chair is therefore not simply managing pay. They are contributing to the board’s overall standing with its regulators. Nomination committees that take the time to find a properly qualified candidate, rather than giving the designation to the most available non-executive, put the board in a stronger position with its supervisors and with its own staff.

Pay also sends a message through the organisation. Staff notice whether senior people who presided over a failure still received full awards, and whether the people who raised concerns were rewarded or sidelined. Under the Consumer Duty and the wider conduct framework, the link between incentives and customer outcomes is under scrutiny across the industry, and the remuneration committee is where that link is set. A Chair who understands that, and who uses the committee’s decisions to reinforce the behaviour the board wants, is doing the job well.

Frequently asked questions

Which firms need an SMF12 Chair of the Remuneration Committee?

SMF12 applies at dual-regulated firms and at FCA enhanced firms that are required to have a remuneration committee. Core SM&CR firms may have a remuneration committee chair, but that person does not hold the SMF12 designation.

Is the bankers’ bonus cap still in force?

No. The PRA and FCA removed the cap on the ratio between fixed and variable pay with effect from 31 October 2023. Firms must now set and justify their own ratios, which is a decision for the remuneration committee.

What is the minimum deferral period for material risk takers?

For banks, building societies and PRA-designated investment firms, the October 2025 reforms set a four-year minimum deferral period for all relevant material risk takers, including senior managers, for performance years starting after 16 October 2025. Other firms follow the deferral rules in their own remuneration code.

Will SMF12 stop needing regulatory pre-approval?

Possibly, but not yet. CP26/37 and the PRA’s parallel consultation propose making SMF12 a notified role. The consultations close on 22 January 2027 and the proposals may change, so firms should still plan for pre-approval.

Can the SMF12 Chair also chair another board committee?

It is possible for one person to hold more than one SMF, but combining committee chairs concentrates both workload and accountability. Boards should consider time commitment, independence and whether the combination weakens challenge before agreeing it.