Summary
Following a consultation last year, the FCA and PRA have made some significant changes to the rules on variable remuneration that apply to certain senior individuals in dual-regulated firms. The new policy statement goes further than the original proposals, with one of the key changes being to allow bonuses to be paid sooner to Material Risk Takers (‘MRTs‘) than has previously been permitted. The new rules came into force with effect from 16 October 2025, allowing the affected firms to make immediate changes to their remuneration structures, should they choose to do so. The move was intended to align the UK approach more closely with other major jurisdictions and to simplify compliance with the remuneration rules. The FCA has stated that it is reviewing the effectiveness of its solo remuneration rules and will update in 2026 following industry and stakeholder engagement – so watch this space.
Which Firms Do These Changes Apply to?
These changes only apply to banks, building societies and PRA designated investment firms, whose remuneration practices are currently governed by the dual-regulated firms Remuneration Code (SYSC 19D in the FCA Handbook) and the remuneration part of the PRA Rulebook.
They do not apply to FCA solo-regulated firms whose remuneration practices are governed by the AIFM Remuneration Code (SYSC 19B), the UCITS Remuneration Code (SYCS 19E) and the MIFIDPRU Remuneration Code (SYSC 19G).
What Are the Key Changes?
- Deferral Period: The minimum period over which a proportion of bonus must be deferred is now 4 years for all MRTs. Previously, the deferral period was up to 7 years for individuals performing a Senior Management Function (‘SMFs‘).
- Earlier Vesting: Awards to SMFs will be allowed to vest on a pro-rata basis from the time of grant, rather than only starting to vest after 3 years.
- Proportion of Bonus that Must be Deferred Reduced: Previously, the proportion of bonus that had to be deferred was either 40% or 60% of the overall amount, depending on quantum of the bonus and seniority of the individual. A new marginal system has been introduced, meaning that 40% of any bonus up to £660,000 must be deferred, and 60% above that level. This ultimately means that a smaller proportion of the bonus must be deferred.
- More Flexibility to Pay Cash Up Front: It remains the case that bonuses must be split 50/50 between cash and non-cash instruments. The requirement that the upfront and deferred payments also had to be split 50/50 has now been removed, meaning that firms can choose to pay a greater proportion of cash up front and a greater proportion of the deferred bonus in non-cash instruments.
- Simplified Identification of MRTs: The process for identifying MRTs has also been simplified.
When Do the Changes Come into Force?
The changes summarised above came into effect on 16 October 2025 and will apply for performance years that start after this date. The FCA and PRA have stated that firms may apply the new rules on an optional basis to the current performance year and/or to remuneration that has been awarded in previous performance years but not yet vested. Firms will need to decide whether or not to apply the rules for any in-flight performance year.
