1. INTRODUCTION AND CONTEXT
The Investment Firms Prudential Regime (IFPR) is the FCA’s new prudential regime for MiFID investment firms which aims to streamline and simply the prudential requirements for UK investment firms. The IFPR came into effect on 1st January 2022, and its provisions apply to Headway Capital Partners LLP (‘Headway’ or the ‘Firm’) as a MIFIDPRU investment firm.
The public disclosure requirements of IFPR are set out in MIFIDPRU 8. Prior to 1 January 2022, Headway was classified as an Exempt-CAD firm and was not subject to disclosure requirements. The Firm is an investment advisor and, as such, is authorized by the Financial Conduct Authority (“FCA”), with permission to carry out the following regulated activities:
- Advising on Investments (except on pension transfers and pension opt outs);
- Arranging (bringing about) deals in investments;
- Making Arrangements with a view to transactions in investments; and
- Agreeing to carry on a regulated activity.
Headway is classified as an SNI firm given it does not breach any requirements set out in MIFIDPRU 1.2.1 R. Given this, the Firm is required to disclosure the following information:
- Remuneration Policy and practices (MIFIDPRU 8.6)
- Provision of quantitative and qualitative disclosures in respect of the Firm’s remuneration arrangements
2.1. Qualitative Disclosures
2.1.1. Objectives of financial incentives
The Firm has established remuneration policies and practices that:
- Promote effective risk management in the long-term interests of the Firm and its clients;
- Ensure alignment between risk and individual reward;
- Support positive behaviours and healthy Firm culture; and
- Discourage behaviours that can lead to misconduct and poor customer outcomes.
The Firm’s remuneration policies are designed to attract and retain qualified and experienced personnel and to ensure that the objectives of these personnel are aligned with the objectives of the Firm.
2.1.2. Governance and Decision making
The Management Body of the Firm, composed by the Managing Partners of the Firm, is responsible for remuneration decisions. Due to the size of the Firm, Headway is not required to establish a remuneration committee.
The scale of the Firm means that personnel who hold control functions are not always independent from the business units that they oversee, however, they have the appropriate authority to take action where necessary and a direct communication line to the Management Body.
The remuneration of the senior management functions is overseen by the Management Body, who ensures that the method for calculating the remuneration of the senior management functions is fair and proportionate to the individual’s role. This will ensure that objectivity is maintained by the individual performing the role.
The Firm’s remuneration policy is reviewed at least annually and after any material event, by the Management Body with advice from the Compliance Officer.
2.1.3. Types of Remuneration
Remuneration for personnel consists of base compensation (or fixed compensation) and, in some cases, performance-related variable compensation. Base compensation is predominantly based upon the individual’s professional experience and organisational responsibility as set out by their job description and terms of employment. In addition, base compensation includes pension contributions and private healthcare. All base compensation is recommended by HR and final approval for compensation levels for all roles is the responsibility of the Management Body.
In addition to their base compensation, personnel may be eligible to receive variable compensation that reflects performance in excess of that required to fulfil their job description and terms of employment. Variable compensation will only be awarded when it is sustainable to the Firm’s overall financial situation and taking into account any known future events, the performance of the Firm, the business unit and the individual. Typically, other variable performance related compensation can be:
- An annual bonus relating to the performance of their role;
- A fundraising bonus based on contribution to the fundraising effort; and
- An allocation of a carry interest based on their role and contribution to a fund.
2.1.4 Link between performance and pay
When assessing individual performance, financial as well as non-financial criteria are taken into account, including effective risk management, compliance with regulations and appropriate conduct in line with the Firm’s values.
The following criteria are considered:
|Financial Criteria||Non-Financial Criteria|
|Firm performance||Individual’s performance against objectives|
|Business unit performance||Adherence to the Firm’s risk management and compliance policies|
|Compliance with regulations|
|Adherence to the Firm’s values and strategy|
|Treating customers fairly|
|Quality of service provided to clients|
Remuneration for personnel usually consists of fixed compensation and, in some cases, performance-related variable compensation. Fixed compensation is predominantly based upon the individual’s professional experience and organisational responsibility as set out by their job description and terms of employment. All fixed compensation is recommended by HR and finally approved by the Management Body. Examples of fixed compensation include basic salary/drawings, pension contributions, health insurance and discounts or special allowances.
2.1.5. Balance between fixed and variable remuneration
A balance between fixed and variable components of remuneration is maintained at all times, so that the remuneration structure does not favour the interests of Firm or its personnel against the interests of any client. This is reviewed by the Management Body on an annual basis to ensure that each relevant individual is incentivised correctly for the role they perform for the Firm and to ensure the balance between fixed and variable remuneration is proportionate to incentivise individuals.
Variable pay is determined based on evaluation of financial performance, affordability and individual performance. Capital strength is also taken into consideration and appropriate reserves are maintained to support the business and enable it to meet its regulatory requirements at all times.
2.2. Quantitative Disclosures
The table below sets out the fixed and variable remuneration paid by the Firm for the year ended 31 December 2022.
|Fixed Remuneration||Variable Remuneration|
|All Personnel (Partners & Employees)||£2.496m||£802.3k|