News release
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have today confirmed plans to increase flexibility around senior banker pay, alongside changes to create better links between bonus awards and responsible risk-taking.
The amount of time that senior bankers must now wait before receiving their full amount of bonus – a bonus deferral period - will be cut from eight to four years. The proposals bring the UK more closely in line with many other major jurisdictions.
Following industry feedback, these changes go further than original proposals announced last year.
The regulators will also allow part-payment of bonuses for the most senior bankers from year one, rather than year three as it was previously.
The new rules will come into force on 16 October 2025, in time for 2025 pay awards and any other awards made but not yet fully paid.
The changes will deliver greater alignment between the regulators and remove unnecessary duplication. The FCA’s remuneration Handbook rules will be cut by more than 70% as firms will now largely only need to refer to the PRA’s remuneration rules.
Sam Woods, Deputy Governor of Prudential Regulation and CEO of the PRA said: “These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis. These changes are the latest example of our commitment to boosting UK competitiveness.”
Sarah Pritchard, Deputy CEO at the FCA, said: “Streamlining our remuneration rules by 70% will cut unneeded complexity and make them simpler to follow.
“And we’re working faster and smarter to support growth by letting firms apply the changes to this year’s pay cycle.
“The new rules also mean senior managers will continue to follow our high standards and remain on the hook where poor decisions affect consumers and markets".
The regulators believe that the new bonus deferral periods will continue to provide enough time for firms to spot any problems and reduce individuals’ pay where needed. This supports safety and soundness and should also help to reverse a trend which has seen banks put a higher amount of total financial reward into fixed pay. This matters as bonuses can be more rapidly reduced if individuals are found to have been at fault for poor decisions, or if the firm’s financial performance worsens.
Additional changes from the regulators include:
- Lifting restrictions on the proportion of bonuses that need to be deferred, going further than at consultation. Previously, 60% of the full amount of any bonuses above the £660,000 threshold needed to be deferred. Now only 60% of amounts above that threshold will need to be deferred.
- New rules to give firms more flexibility to allow a greater share of the cash element of bonuses to be received up front. More of the component comprised of shares and other instruments can now be deferred, which helps promote responsible risk-taking. Previously, both the upfront and deferred components of bonuses had to be 50% cash and 50% instruments.
The new rules simultaneously look to strengthen the link between the actions of senior bankers and their financial rewards, strongly encouraging firms to tie bonuses closer to not just the successes of executives, but also any risk-management failures.
The rules also introduce greater alignment with the Senior Managers Regime, so that firms consider performance against PRA supervisory priorities in the bonus payouts of the responsible Senior Managers.
Notes to editors
1. See the remuneration policy statement.
2. See the previous proposals. They suggested cutting bonus deferrals to five years for senior bankers, and four for less senior staff.
3. Previously, the maximum deferral period was seven years for higher-paid senior managers, plus a 6 to 12-month retention period (which the PRA is now abolishing as part of this reform).
4. Additional changes previously announced at consultation stage and coming into force at the same time include:
- Removing EU-originated guidelines that:
- prohibit paying dividends or interest on deferred bonuses awarded in shares or other instruments; and
- require senior bankers to wait up to a year before being able to sell deferred bonuses in shares or other instruments. - Reducing the number of individuals subject to rules on their pay, giving firms more discretion to determine which employees will be subject to the rules.
- Introducing clarifications to ensure pay, particularly for senior staff, is adjusted to better reflect risk outcomes, including risk-management failures and individual responsibilities, in turn holding senior managers more accountable for the outcomes of their areas’ risk-taking.
5. The rule changes also come in the wake of 2023’s removal of the banker bonus cap. Since its removal, several firms have started using this new flexibility to announce plans to offer higher bonus ratios, increasing the attractiveness and sensitivity of pay packages to risk outcomes.
6. The senior banker remuneration regime describes individuals it applies to as Material Risk Takers. Material Risk Takers are employees whose professional activities have a material impact on the firm’s risk profile. Anyone identified as a PRA Senior Manager Function holder (i.e. CEO, CFO, CRO) is a material risk taker and is therefore subject to these remuneration regulations.
7. Within that Senior Manager group those that are ‘higher-paid’ senior managers have previously been subject to a longer deferral. Higher paid was defined as individuals whose total pay is in excess of £500,000 or whose variable pay accounts for over 33% of total pay.
8. The changes build on work from the regulators to boost growth and competitiveness in the financial sector. These include options to enhance competition in the mortgage market, work to make the resolution regime more proportionate, and plans to simplify the capital regime for smaller, UK-focused banks.
9. The FCA is also supporting the growth and competitiveness of UK financial services by:
a. Simplifying its mortgage rules
b. reforming its regime for alternative asset managers, to make it easier for firms to enter the market, grow, compete and innovate.
10. The FCA is also reviewing the effectiveness of its solo remuneration rules and will update next year following industry and stakeholders engagement. The FCA’s three other remuneration codes are:
a. the AIFM Remuneration Code (SYSC 19B)
b. the UCITS Remuneration Code (SYSC 19E)
c. the MIFIDPRU Remuneration Code (SYSC 19G)