The regulators have tweaked the final rules in places to grant more flexibility to firms.
On 15 October 2025, the PRA and the FCA published their joint Policy Statement on reform of the remuneration rules for banks (PRA PS21/25, FCA PS25/15). They previously consulted on these changes in November 2024, with a view to making the regime more proportionate and thereby helping to boost the competitiveness of the UK (see this Latham blog post).
The regulators have now finalised the changes, noting strong support from respondents. They have further liberalised some of the rules — in light of the feedback received and the prevailing political climate — to bring the UK back closer to international norms. It is striking how much of the feedback has been taken on board, both on the specific consultation proposals and on other aspects of the framework.
This marks another area in which the regulators have sought to revise expectations to reduce the regulatory burden in pursuit of the government’s growth agenda. Affected firms will no doubt welcome the changes, following the removal of the bonus cap in 2023. While these changes only apply to banks, the FCA is currently undertaking a review of the remuneration rules for solo-regulated firms (applicable to AIFMs, UCITS managers, and MiFID investment firms). The FCA notes that it will provide an update on this work in early 2026.
Summary of Changes to the Remuneration Framework
Confirmed changes to the remuneration framework include:
- Amending the quantitative criteria for identifying Material Risk Takers (MRTs) by creating a single quantitative threshold to identify MRTs so that firms are expected to consider identifying individuals within their 0.3% of highest earners as MRTs. Firms do not need to seek regulatory approval to exclude any individuals solely identified by the quantitative criteria from MRT categorisation.
- Reinstating a lower threshold below which firms may disapply certain remuneration rules (such as deferral) to MRTs (total remuneration not exceeding £660,000 and variable remuneration not representing more than 33% of total annual remuneration), and raising the variable remuneration threshold at which at least 60% of variable remuneration must be subject to deferral requirements from £500,000 to £660,000. The PRA has made a further change in the final rules so that the 60% deferral requirement will only apply on a marginal basis. Therefore, only 60% of variable remuneration above the new £660,000 threshold needs to be deferred for high earners, rather than 60% of the full amount once variable remuneration goes above £660,000. The first £660,000 is subject to the lower 40% deferral rate.
- Reducing the seven-year minimum deferral period to four years across all MRTs. The PRA had originally proposed to reduce this to five years for certain Senior Managers, and four years for other MRTs. The PRA considers that this reduction strikes an appropriate balance, noting that while shorter deferral periods could lead to a higher possibility of risk events emerging after the end of the deferral period, there are mitigants firms can employ to counteract this risk. Importantly, it also notes that this change brings the UK more closely into line with other jurisdictions.
- Specifying that, for Senior Managers, deferred awards can vest on a pro rata basis from the time of award (rather than no earlier than the third year).
- Introducing new guidance that firms are not expected to set a retention period for deferred instruments, and removing the prohibition on payment of interest or dividends on deferred instruments.
- Removing rules in SYSC 19D of the FCA Handbook that are duplicative of rules in the Remuneration Part of the PRA Rulebook, meaning that most of the remuneration rules are set out in one place in the PRA Rulebook.
- Adding optionality for individuals to receive a greater share of variable remuneration in cash up front. Although the PRA did not propose changes to the requirement for an equal split between cash and instruments when paying variable remuneration in the consultation, feedback requested greater flexibility in this area. Therefore, the PRA has decided to allow firms to pay a greater proportion of cash up front if they choose, provided that the equal split between cash and instruments is maintained overall, such that firms must ensure the deferred portion contains a correspondingly higher proportion of instruments.
- Tightening up expectations around the adjustment of variable remuneration. The PRA has introduced a new rule to require firms to consider variable remuneration adjustments in situations where it is reasonable that MRTs, by virtue of their role or seniority, could be held responsible for risk events that occur in areas where they are the responsible manager. It has also introduced a new rule requiring that material or urgent actions requested by the PRA in a Periodic Summary Meeting should be adequately documented (although these need not be recorded in a Senior Manager’s Statement of Responsibilities, as originally proposed). Further, the FCA has clarified expectations for Remuneration Committees with regards to managing adverse risk events. However, despite respondents requesting additional clarification, the PRA has not offered further guidance around the circumstances in which firms should seek to adjust variable remuneration, noting that firms need to exercise their own discretion in this area.
The PRA has also made more minor changes in areas on which it did not consult in response to the feedback received, including reintroducing an exemption from certain rules on remuneration structures for individuals who have been MRTs for less than three months, and removing the expectation for firms to pre-notify supervisors of retention awards.
The PRA indicates that, in light of respondents’ comments concerning remuneration data reporting (which was not covered in the original consultation), it is considering broader changes to these reporting requirements in future. In the meantime, it has published new guidance on its website to provide greater clarity to firms. Further, in response to comments on its proposals, the PRA has provided additional guidance and clarification in some areas, including amendments to clarify expectations regarding the governance of MRT identification processes.
Application
The changes come into force on 16 October 2025 and apply in full to a firm’s performance year starting after that date. The changes relating to pay, such as deferral periods and amounts, are effectively being backdated by being available for firms to apply to the current performance year if they choose, which is a change from the original proposal. This shows the extent to which pressure to move quickly, and to prioritise international competitiveness, have driven these changes. Other measures, such as those relating to firm governance, will only apply to the next performance year.
