The Prudential Regulation Authority (PRA), together with the Financial Conduct Authority (FCA), published a joint policy statement finalising reforms to the regulators’ remuneration rules and expectations for banks, building societies and PRA-designated investment firms. The package shortens and standardises bonus deferral for Material Risk Takers (MRTs), simplifies MRT identification and adjusts governance and senior accountability expectations, while the FCA restructures SYSC 19D to largely cross-refer to the PRA Rulebook Remuneration Part. All relevant MRTs, including Senior Management Functions, will be subject to a four-year minimum deferral period. Deferral rates move to a marginal approach, with 40% deferral applying to the first GBP 660,000 of each bonus award and 60% applying above that level, and firms gain flexibility over the upfront cash versus instrument mix by removing the rule requiring an equal split between upfront and deferred instruments. The PRA confirms a one-year retention period continues to apply to upfront instruments while it no longer expects retention periods for deferred instruments, and permits interest or dividends on deferred remuneration while confirming interest may continue to accrue on deferred cash awards. Other changes include reinstating an exemption from certain remuneration-structure rules for individuals who have been MRTs for less than three months, removing the expectation to pre-notify retention awards (with disclosure instead via remuneration policy statements), introducing a single quantitative MRT indicator based on the top 0.3% of earners and removing the approval process for excluding individuals identified solely by quantitative criteria, and raising the individual MRT proportionality threshold for disapplying certain rules to total pay below GBP 660,000 where variable pay is no more than 33% of total pay. The FCA proceeds with its SYSC 19D cross-referencing approach (supervising and enforcing the cross-referred PRA Remuneration Rules as if they were FCA rules), introduces a buy-outs exemption for ‘small’ dual-regulated firms, withdraws certain FCA non-Handbook remuneration guidance, and stops its bi-annual letter to remuneration committee chairs. Firms may apply the deferral-related changes (including deferral length and amount, payment in instruments, pro-rata vesting for SMFs, retention periods and retention award expectations) on an optional basis to a performance year ongoing on 15 October 2025 and/or to previously awarded but unvested remuneration, and previously submitted Remuneration Policy Statements do not need to be resubmitted. All other changes take effect on 16 October 2025 and apply to performance years starting after that date, and the regulators flagged future work on remuneration reporting requirements and Remuneration Policy Statement tables, alongside the FCA’s ongoing review of solo-firm remuneration codes with an update expected in early 2026.
Prudential Regulation Authority 2025-10-15
Prudential Regulation Authority and Financial Conduct Authority finalise remuneration reforms with four-year bonus deferral and marginal deferral rates above GBP 660,000
The Prudential Regulation Authority and Financial Conduct Authority have finalized reforms to remuneration rules for banks, building societies, and PRA-designated investment firms. Key changes include a standardized four-year bonus deferral for Material Risk Takers (MRTs), a marginal deferral rate approach, and increased flexibility in remuneration structures. The reforms introduce a single quantitative MRT indicator and adjust governance expectations, with most changes effective from 16 October 2025.