UK regulators finalise rules on remuneration reforms

The UK Prudential Regulation Authority (PRA) and the UK Financial Conduct Authority (FCA) have published joint policy statement PS21/25, setting out the final policy changes to the remuneration rules for dual-regulated firms. The policy statement also provides a summary of feedback to the regulators' November 2024 consultation.

The final rules go beyond the original proposals with key changes including:

• Reducing the bonus deferral period for Senior Management Functions (SMFs) further, so a uniform four-year bonus deferral period will apply to all Material Risk Takers.
• Removing the requirement for a 50/50 split between cash and instruments in both upfront and deferred bonus proportions. Firms may now pay a higher proportion of bonuses in cash up front, provided the deferred portion contains a correspondingly higher proportion of instruments.
• Reducing bonus deferral requirements for many individuals, with the 40% deferral rate applying to the first GBP660,000 and 60% above that threshold.

To support the shift toward a unified framework, the FCA remuneration Handbook rules will be cut by more than 70% as firms will now largely only need to refer to the PRA's remuneration rules.

In line with this simplification, the FCA's Remuneration Code (SYSC 19D) will primarily cross-refer to the PRA's "Remuneration Part" of the PRA Rulebook, removing duplicative provisions. Specific FCA guidance and rules will remain only where necessary. Most of the changes will take effect on 16 October, applying to a firm's performance year starting after that date. However, firms may apply some of the changes on an optional basis to a performance year which is ongoing as of 15 October and/or to remuneration that has been awarded in previous performance years but not yet vested. These changes include the deferral length, the amount deferred, the proportion of deferred payment in instruments, pro-rata vesting of pay for SMFs, retention periods and retention awards. The final rules and expectations are implemented through the statutory instruments included in the appendices to the final policy statement, the updated PRA Supervisory statement: Remuneration (SS 2/17) and the FCA's finalised guidance on the application of ex-post risk adjustment to variable remuneration FG23/6.

On the same day, the PRA has also published guidance containing interim instructions for firms on completing remuneration policy statements (RPS). The PRA plans to consult in the future on broader changes to the RPS tables and other remuneration reporting requirements. However, in the meantime, the guidance clarifies some of the changes firms should note when submitting RPS tables to the regulators for performance years beginning after 16 October.

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