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Introduction

On 15 October 2025, the PRA and FCA finalised their proposals for significant relaxations to rules governing remuneration for banks and designated investment firms, including allowing material risk takers to receive their bonuses sooner. This follows the PRA and FCA’s consultation on changes to the relevant remuneration codes in November 2024, and the removal of the bonus cap in 2023.

The final proposals are intended to increase flexibility around senior banker pay and to link bonuses more closely with responsible risk-taking. Industry feedback to the November 2024 consultation was described by the regulators as “strongly supportive” of these changes, which will take effect immediately.

Key changes

  • Deferral period: The period for which senior bankers will need to wait to receive their bonus in full will be standardised for all material risk takers at four years, in line with many other jurisdictions such as the US – a substantial reduction from what was a seven-year period for some individuals. The PRA and FCA believe this provides firms sufficient time to spot problems and reduce individuals’ pay where necessary. A retention period for share-based remuneration will continue to apply, but (as proposed in November 2024) the PRA have clarified that this will not be relevant for deferred instruments.
  • Timing of payment: The most senior bankers will be allowed to start receiving partial payment of their bonuses from year one; they will no longer need to wait until year three.
  • Proportion of bonus subject to deferral: In its initial proposal last year, the PRA and FCA proposed to raise the threshold at which the 60% bonus deferral rules apply from £500,000 to £660,000. In response to concerns about how this might create a “cliff-edge”, the final proposals have increased the threshold to £660,000, with a lower 40% deferral applying on the portion of the bonus below the threshold and the current 60% deferral only applying on the portion above. As a result of this, and revisions to the exclusion from deferral requirements to align with the £660,000 figure, the regulators expect that overall number of bankers who will have their bonuses deferred will be reduced.
  • Form of payments: Firms will now have the flexibility to determine how they implement the 50/50 split between the cash and non-cash element of bonuses instead of having to ensure that both deferred and undeferred remuneration needs to be subject to a 50/50 split. This will in practice allow payment of a greater share of the cash component upfront, with a larger portion of the shares and other instruments component deferred. The regulators consider that this structure will strengthen the connection between pay and performance, which in turn may promote responsible risk-taking.
  • Simplification of rules: As part of the reforms, the FCA is removing approximately 70% of its remuneration rules from its Handbook to avoid duplication with the PRA’s rules. Following the changes, firms will, for the most part, only need to refer to the PRA’s remuneration rules.

Timing

  • These changes come into effect on 16 October 2025 and will apply to the current pay cycle, including awards made but not yet fully paid.

Commentary

These reforms go further than anticipated in the PRA’s original proposals last year. They are intended to ease the restrictions to bankers’ pay which were introduced following the 2008 financial crisis, in order to promote UK competitiveness as part of an ongoing push to encourage growth in the UK financial services sector. The PRA and FCA hope that the changes will reverse the trend seen over recent years of putting a higher proportion of remuneration into fixed pay, instead of variable pay arrangements which can be more easily reduced to reflect performance.