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.