PRA and FCA announce changes to banker bonuses

In November 2024, the PRA and FCA published a joint consultation proposing changes to the current senior banker remuneration regime for dual-regulated firms. On 15 October 2025, the regulators confirmed their plans to increase flexibility around senior banker pay, alongside changes to create better links between bonus awards and responsible risk-taking. Overall, the joint policy statement adopts the main direction of last year’s proposals but does include some changes that go beyond the original consultation. This blog post outlines some of the more significant changes. 

Key changes

• Deferral periods. The PRA will reduce the minimum bonus deferral period for Senior Management Functions (SMF) and other material risk takers (MRTs) to four years, creating a single minimum deferral period for all MRTs. This goes further than last year’s consultation which proposed reducing the seven-year minimum deferral period for SMFs to five years (and from five to four for other MRTs). This alignment across the MRT population simplifies the regime and brings UK rules more in line with international standards.  

• Deferral rates. Following feedback on a proposal to raise the threshold for the higher 60% deferral rate from £500,000 to £660,000 of variable pay, the PRA will now introduce a marginal deferral system. The 40% rate will apply to the first £660,000 of variable pay, and 60% will apply only to the amount above that threshold. This will remove the ‘all or nothing’ cliff-edge that the original proposals might have resulted in.

• Payment in instruments. While not initially proposed in the consultation, the PRA will amend its rules to remove the requirement for at least 50% of variable pay to be paid in instruments, split equally between the upfront and deferred portions. Firms will now be able to pay a greater proportion of cash up front, provided that the deferred portion has a correspondingly higher proportion of instruments. This change will give firms more discretion in structuring the cash and instrument components of variable pay. 

• Retention periods and dividend and interest payments. The consultation proposed that firms would not be expected to apply a retention period to deferred instruments and that dividends and interest could be paid on them. These changes will be implemented according to the policy statement, with clarification that a one-year retention period for upfront instruments remains. 

• Vesting. The proposal that deferred awards to senior managers vest on a pro rata basis from the time of grant (rather than only starting to vest after three years) will be adopted, allowing for faster vesting compared to the previous rules. 

Identifying MRTs

The 2024 consultation proposed:

• simplifying the quantitative threshold for identifying MRTs;

• removing the need for the PRA to approve exclusions;

• enhancing the role of specific individuals within firms – such as the Chief Risk Officer – in the MRT identification process; and

• increasing the threshold at which firms may disapply specific remuneration requirements for MRTs. 

These proposals have largely been adopted with some clarification. Specifically, the policy statement clarifies that the PRA’s expectation for the Chief Risk Officer is one of ‘oversight’ rather than ‘active involvement’ in the design of the MRT methodology, addressing concerns about day-to-day operational burdens. 

The policy statement also reinstates a historical exemption from rules on deferral and payment in instruments for individuals who are in an MRT role for less than three months. This was not in the original consultation but is in response to various respondents noting the impracticalities of applying full requirements to short-term roles. 

Remuneration and individual accountability

Consultation proposals around remuneration and individual accountability included:

• requiring firms to consider adjusting pay of accountable individuals up the management chain in the event of failures of risk management;

• reflecting PRA supervisory priorities in SMF Statements of Responsibilities (SoRs); and 

• clarifying the role of remuneration committees with regards to determining accountability for adverse risk events. 

Responding to concerns about the potential for additional administrative burdens, the PRA clarifies in its policy statement that, for remuneration purposes, material supervisory actions do not need to be recorded in SoRs but must be adequately documented and available upon request. 

All other proposals under this umbrella were adopted without changes.

FCA rule changes

Respondents were strongly supportive of proposals to simplify the FCA Handbook’s SYSC 19D rules by cross-referring to the PRA’s Rulebook and exempting small dual-regulated firms from buy-out rules.

The FCA will therefore proceed with these changes to remove duplication and align the regimes.

Implementation timeline

The new rules will come into force today, and will apply to firms’ performance years starting after 16 October 2025. The consultation proposed that changes would apply to performance years starting after the final policy was published, but yesterday’s policy statement gives firms the option to apply the new rules on deferral periods and rates, payment in instruments and retention periods to the current performance year and to unvested awards from previous years. 

Ultimately, the new rules present a clear opportunity for financial services firms to strategically reset their remuneration frameworks to be simpler, more competitive, and better aligned with their risk appetite. As a starting point, firms should decide whether to adopt any of the new flexibility for the current performance year and for unvested awards from prior years, and then move on to reviewing and optimising their remuneration structures for future performance years. Internal policies and procedures may need to be updated to reflect these changes. 

The policy statement also confirms that the FCA is reviewing the effectiveness of its solo remuneration rules and will update next year following industry and stakeholder engagement, so watch this space.