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FCA and PRA publish joint policy statement on bankers’ remuneration reform

Authors

Robin B. Jeffcott, Romin Dabir, Carl De Cicco, David Ashmore,
Gabrielle Butler <em>(Trainee Solicitor)</em>

Key takeaways

  • Policy Statement confirms changes to rules on deferral, retention, and MRT identification, intending to more closely align UK with international standards
  • Under new rules, banks can pay larger cash bonuses and apply shorter deferral periods
  • New rules apply to performance years starting after 16 October 2025, but firms can choose to adopt certain changes immediately

Background

In November 2024, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) (together, the Regulators) published PRA CP 16/24 and FCA CP 24/23, a joint consultation paper on proposed reforms to the remuneration rules (the Paper). Subsequently, on 15 October 2025, the PRA and FCA published PS21/25 and PS25/15 respectively, a joint policy statement providing feedback on responses to the Paper and outlining the final policy to be adopted by the Regulators (the Policy Statement).

Key changes from the Paper

After considering feedback on the Paper, the Regulators have outlined certain key changes from the original proposals, particularly relating to deferral and retention.

Deferral

The Regulators have reduced the deferral period for all Material Risk Takers (MRTs), including Senior Management Functions (SMFs), to four years. Although there is still a requirement for 50% of bonuses to be paid in instruments and 50% to be paid in cash, the changes give firms flexibility over the proportion paid in cash up front, meaning that firms can opt to pay a larger proportion in cash up front if the deferred amount is made up of a proportionately higher percentage of instruments.

Furthermore, the higher deferral rate of 60% that currently applies to high earners will now apply on a marginal basis, meaning that a rate of 40% will be applied to the first £660,000 of any bonus award, and 60% will be applied to any amount over that level.

The Regulators believe that these changes are in line with the overall objectives of the remuneration rules and will align practice more closely with international standards.

Retention

The PRA has removed the requirement to pre-notify retention awards to supervisors, but firms must still disclose the awards through their remuneration policy statements. The Policy Statement also confirms the Paper’s proposal to remove the one-year retention period for deferred instruments, but clarifies that the requirement will still apply to upfront instruments.

MRT identification and exemptions

The PRA affirms its expectation that a single quantitative test should be used to identify MRTs, namely any individuals within the 0.3% of highest earners in the firm. The PRA has also reintroduced an exemption to certain rules for individuals who have been MRTs for less than three months, including rules relating to deferral and payment in instruments.

Alignment of SYSC with PRA rules

The FCA will proceed with its proposal to update SYSC 19D to largely cross-refer to the structure of the PRA’s Remuneration Rules, thus removing the need for the FCA to maintain its own set of parallel remuneration rules and limiting duplication. The PRA’s Remuneration Rules will therefore apply automatically to dual-regulated firms as if they were FCA rules. Where the FCA decides to keep its own specific remuneration rules or guidance, these will remain in SYSC 19D.

Implementation

The rules came into force on 16 October 2025 and apply to firms’ performance years starting after that date. However, the Regulators have provided firms with the option to apply certain rules, such as those relating to deferral periods and amounts, payment in instruments, and retention periods, to the firm’s current performance year and unvested awards from previous performance years.

Next steps

The PRA indicated plans to consult on changes to remuneration data reporting requirements and remuneration policy statements tables, and the FCA is currently reviewing the operation and effectiveness of its solo remuneration rules with a view to providing an update in early 2026.

Client Alert 2025-271

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