Remuneration Rules for UK Private Fund Managers: Key Features of the FCA’s New Regime

In our recent alert on the Financial Conduct Authority (FCA) consultation on new rules for UK alternative investment fund managers (AIFMs) published 14 July 2026, “A New Regime for UK Private Fund Managers: Latest From the FCA and HMT,” (17 July 2026), we noted that the FCA had also published a consultation paper (CP) on revisions to remuneration rules for solo-regulated firms (CP26/27).

CP26/27 sets out a new remuneration framework for AIFMs and Markets in Financial Instruments Directive Prudential (MIFIDPRU) investment firms, including portfolio managers. Undertakings for Collective Investment in Transferable Securities (UCITS) managers are also included in the proposed regime. The proposals would replace the existing AIFM, MIFIDPRU, and UCITS remuneration codes with a single consolidated remuneration code (Senior Management Arrangements, Systems and Controls 19AA). The new rules will not apply to small AIFMs or small and non-interconnected MIFIDPRU investment firms, with rules for them subject to further consultations.

The consultation period for CP26/27 closes on 16 September 2026. The FCA currently intends to publish final rules with transitional arrangements in Q1 2027.

CP26/27 Headline Points

• CP26/27 contains a fundamental overhaul of the remuneration rules. With the other parts of the UK reform package for asset managers, it reflects the FCA’s stated objective of delivering “a more proportionate, outcomes-focused” regulatory framework while maintaining appropriate safeguards around governance and conduct. 
• The consultation seeks to reduce the level of prescription in favour of greater flexibility and governance-based oversight. For private fund managers, several of the proposed changes are likely to be welcome, including the narrowing of those members of staff classified as material risk-takers (MRTs), discussed in more detail in this alert’s “Narrower Scope for MRTs” subsection.
• Although many of the proposed remuneration reforms are expected to reduce compliance burdens, managers should avoid viewing the consultation as a wholesale deregulation exercise. Instead, the FCA proposes to replace detailed rules with greater reliance on firms’ governance, judgment, and accountability.
• Senior management will therefore need to ensure that remuneration policies remain capable of demonstrating appropriate alignment between remuneration, risk management, and investor outcomes.

Some Noteworthy Aspects for Private Fund Managers

Based on our initial reading of CP26/27 and experience with implementation of the regimes that it is seeking to replace, what follows are some of the more interesting or noteworthy aspects for private fund managers.

Carried Interest Expressly Recognised as Remuneration

As is the case under the current AIFM remuneration rules and those under MIFIDPRU, carried interest is recognised as a form of remuneration.

The current definition of carried interest, that is, “a share in the profits of the AIF accrued to the AIFM as compensation for the management of the AIF, and excluding any share in the profits of the AIF accrued to the AIFM as a return on any investment by the AIFM into the AIF” (FCA Handbook), will be retained.

Unlike the current position in the MIFIDPRU Remuneration Code, the FCA is not proposing to subject carried interest to special regulatory requirements.

Instead, managers will retain flexibility to determine how carried interest should be reflected within their remuneration policies, consistent with the overall objective of promoting sound risk management and appropriate governance.

The unchanged regulatory classification of carried interest as remuneration is separate from its tax treatment, which since April 2026 has been deemed trading income for UK tax purposes.

Narrower Scope for MRTs

CP26/27 proposes a significant reduction in the categories of staff who must be identified as material risk-takers.

Currently, managers are required to identify a broad population of MRTs, many of whom become subject to detailed remuneration requirements regardless of the level of influence they exercise over the firm’s overall risk profile.

The FCA proposes a more targeted approach, limiting MRT status to staff members “whose professional activities or remuneration incentives have a material impact on”

• “the firm’s conduct in relation to its clients, and investors”; 
• “the interests of the investors” and the funds; or
• “the firm’s compliance with [its] obligations under the regulatory system.”

For the FCA, this better aligns regulatory requirements with the underlying policy objective while reducing unnecessary compliance burdens for firms. For many private fund managers, particularly those with relatively large MRT populations under the current rules, this could significantly reduce the number of employees subject to additional remuneration rules.

Greater Flexibility on Malus and Clawback

The FCA also proposes to move away from prescriptive requirements for malus and clawback. In this context, “malus” refers to the ability to reduce or adjust variable remuneration before it is paid or vested (for bad behaviour), while “clawback” refers to the ability to recover remuneration that has already been paid.

Rather than prescribing mandatory minimum periods and detailed trigger events, the FCA proposes a basic rule requiring a firm to consider whether or not it would be appropriate to establish and implement performance adjustment mechanisms in relation to the variable remuneration of MRTs when outcomes are inconsistent with the firm’s expectations on conduct, compliance, or risk management.

In the accompanying guidance, the FCA states that it expects those mechanisms to enable the firm to (i) “make proportionate adjustments to [an MRT’s] variable remuneration” and (ii) “prevent the [MRT] from benefitting from their misconduct.”

The guidance provides malus and clawback, together with “reductions to, or decisions not to vest, deferred remuneration” and in-year adjustments, as examples of performance adjustment mechanisms.

The FCA’s view that responsibility for determining the appropriate operation of these mechanisms should rest primarily with firms themselves, rather than in detailed FCA Handbook provisions, represents an important shift in regulatory philosophy. While firms will continue to be expected to operate effective risk-adjustment mechanisms, they will have considerably greater discretion over their design and application. In keeping with a general trend in CP26/27, compliance with specific requirements will be replaced by compliance with more general requirements, with private fund managers having to demonstrate that the measures they put in place appropriately support prudent risk-taking and good governance.

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Please do not hesitate to speak to one of the authors of this alert or your usual Goodwin contact if you have any questions or want to discuss how the new regime may impact your fund structures, operational arrangements, investor relationships, and investment strategy.