PS21/25 – Remuneration Reform

1: Overview

1.1 In November 2024, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) (jointly ‘the regulators’) published joint PRA consultation paper (CP) 16/24 – Remuneration Reform and FCA CP24/23 ‘Remuneration Reform’. The CP proposed reforms to the regulators’ remuneration rules and expectations for banks, building societies and PRA designated investment firms (hereafter ‘firms’).

1.2 The regulators’ regime seeks to ensure better alignment between the financial incentives of staff who have a material impact on the firm’s risk profile, and the long-term interests of the firm and ultimately the UK economy. The regime works alongside other governance requirements and expectations including the Senior Managers and Certification Regime (SM&CR) to support both firms and regulators in holding senior staff to account.

1.3 The consultation proposals aimed to make the remuneration regime more effective in helping to embed sound risk management practices, simpler for firms to implement, and more proportionate and better tailored to the UK market. The regulators consider that, taken together, the proposals bolster the regime’s core objective of safety and soundness while also promoting the competitiveness and growth of the UK economy by:

• reducing the number of individuals subject to the remuneration rules (known as Material Risk Takers (MRTs);
• simplifying the approach for identifying MRTs, placing more emphasis on firms to own and safeguard the process;
• bringing rules on deferral of variable remuneration (‘bonus deferral’) more in line with international practice; and
• ensuring that variable remuneration (eg ‘bonuses’) better reflects risk taking outcomes and individual responsibilities.

1.4 CP16/24 also included FCA-specific changes. It proposed to change the structure of SYSC 19D so that it largely cross-refers to the PRA’s Remuneration Rules. Thereby:

• removing the need for the FCA to maintain its own set of parallel remuneration rules;
• ensuring the PRA’s proposed rule changes would automatically apply to firms in scope of the FCA’s dual-regulated firms Remuneration Code; and
• ensuring that where the FCA has decided to keep specific rules relating to remuneration, or where the FCA provides specific guidance explaining how firms in scope should apply the remuneration rules, these will remain in SYSC 19D.

The FCA also proposed exempting ‘small’ dual regulated firms^{footnote [1]} from requirements related to buy-outs, in alignment with the PRA’s existing approach.

1.5 This joint policy statement (PS) provides feedback to the responses the regulators received to the CP and contains the regulators’ final policy.

Summary of responses

1.6 The regulators received twenty responses to the CP.^{footnote [2]} Overall, respondents strongly supported the regulators’ proposals. Responses stated the proposals would provide greater flexibility in designing remuneration structures, enabling firms to reduce compliance costs and be more competitive in attracting talent. Respondents additionally proposed a small number of further changes or clarifications. The regulators have made a number of changes to the final policy in light of responses (set out below), where doing so continues to advance the regulators’ objectives and is proportionate.

1.7 Respondents to the FCA’s specific proposals were also supportive of the proposed changes. As such, the FCA is proceeding with these changes as consulted on. This will mean updating the format of ‘SYSC 19D Dual-regulated firms Remuneration Code’ so it largely cross refers to the ‘Remuneration Part’ of the PRA Rulebook (PRA Remuneration Rules).

1.8 The full details of the regulators’ responses and final decisions are set out in Chapters 2 to 8 below.

Changes to draft policy

Deferral

1.9 In CP16/24, the PRA proposed reducing the 7-year minimum deferral period that applies to certain Senior Management Functions (SMFs) to five years, and from five to four years for other (non-SMF) MRTs. The PRA also proposed additional changes to deferral requirements including:

• permitting deferred awards for senior managers to vest gradually from the time they are granted, rather than starting in year three as is currently the case for some roles;
• no longer expecting firms to apply a retention period to deferred instruments; and
• allowing firms to pay interest or dividends on those instruments.

1.10 After considering responses to the consultation, the regulators have decided to further reduce deferral periods for relevant SMFs to 4 years. This means all MRTs will now be subject to the same 4-year minimum deferral period. Additionally, the regulators are making the following changes:

• giving firms flexibility over the proportion of bonuses that can be paid in cash up front by deleting Remuneration 15.16; and
• reducing bonus deferral requirements for many individuals by allowing firms to calculate the share of bonuses that must be deferred more proportionately through amending Remuneration 15.18. Specifically, the higher deferral proportion (60%) for high earners will now apply on a marginal basis, with the 40% deferral rate applying to the first £660,000 of all bonus awards.

1.11 The PRA considers these changes to be in line with its safety and soundness objective for the reasons set out in Chapter 2 of this PS. Similarly, the FCA considers the changes would continue to meet its objectives to protect consumers, enhance market integrity and promote competition in the interest of consumers for the reasons set out in Chapter 2.

1.12 The regulators also expect that these additional changes will further enhance the competitiveness of UK firms, particularly by aligning deferral periods more closely with international standards and the approach taken in the majority of countries that apply remuneration rules. These changes will also help UK firms attract and retain talent, potentially helping to advance economic growth in the medium to long-term.

1.13 In considering the effectiveness of the overall regime, the PRA has also:

• reintroduced an exemption from certain rules on remuneration structures for individuals who have been MRTs for less than 3 months;
• removed the requirement for pre-notification of retention awards from supervisory statement (SS) 2/17 – Remuneration; and
• provided clarity on interim modifications to remuneration reporting prior to a fuller consultation in future.

1.14 Finally, the PRA has made minor clarifications to the requirements relating to its other proposals on MRT identification and individual accountability which are set out in detail in Chapters 3-5 of this PS.

Implementation timeline changes

1.15 The regulators proposed that changes in CP16/24, would come into force on the next calendar day after publication of the final policy and would apply to firms’ performance years starting after that date. The aim was to give firms sufficient time to consider and implement any changes as a result of this CP.

1.16 Nine respondents asked the regulators to let firms modify deferral policies within the same performance year as new rules are issued. Three wanted the new deferral rules applied to unvested past awards from previous performance years. One respondent cautioned that implementation part-way through a performance year might represent a challenge for some firms.

1.17 In light of the responses, the PRA has decided that rules and expectations related to:

• deferral length (Remuneration 15.17, Paragraphs 4A.2, 5.44A SS2/17);
• amount deferred (Rules 15.17-15.18, Paragraph 5.44, SS2/17);
• payment in instruments (Rule 15.16);
• pro-rata vesting of pay for SMFs (Rule 15.17);
• retention periods (paragraphs 1.9A and 1.9B SS2/17); and
• retention awards (paragraph 5.39 SS2/17)

may be applied by firms, on an optional basis, to a firm’s performance year which is ongoing on 15 October 2025, and/or to remuneration that has been awarded in previous performance years but not yet vested. The regulators will not ask firms to re-submit their Remuneration Policy Statements for the current year if they have already done so before 15 October 2025. This implementation flexibility can be used at firms’ discretion.

1.18 All other changes come into force on 16 October 2025, and apply to firms’ performance years starting after that date. This provides firms with the necessary time to establish controls, develop clear remuneration frameworks, and strengthen governance and committee preparedness.

1.19 The regulators remind firms that they continue to be required to establish, implement, and maintain policies, procedures, and practices that are consistent with, and promote, sound and effective risk management. The regulators expect firms to carefully consider risks and take care to avoid adverse impacts when utilising this increased flexibility.

1.20 The regulators will continue to review and monitor firms’ compliance with all applicable remuneration rules, and any effects on incentives and behaviours through reviews of or requests for completed Remuneration policy statements. The regulators will take supervisory or enforcement action if appropriate.

2: Deferral and retention periods

2.1 In CP16/24, the PRA proposed:

• reducing the 7-year minimum deferral period currently applicable to variable remuneration awarded to SMFs to a minimum of 5 years by amending PRA remuneration rule 15.17 (deferral);
• amending PRA remuneration rule 15.17 (deferral) to reflect that in the case of a non-SMF MRT, variable remuneration awarded should be deferred for 4 years minimum;
• allowing deferred awards to vest on a pro-rata basis for SMFs from the time of award. This would allow faster deferral than the current approach for certain SMFs for whom vesting only starts from year 3;
• that firms are not expected to set a retention period for deferred instruments by inserting a new paragraph 1.9A in SS2/17. This change would allow deferred instruments to vest immediately, rather than being subject to the current 6–12 month retention period;
• allowing firms to pay interest or dividends on deferred instruments by inserting a new expectation in paragraph 1.9C in SS2/17; and
• amending Table G in SS2/17 to reflect the changes to deferral period requirements.

Deferral periods

2.2 The PRA proposed deferral periods of 5 years for SMFs and 4 years for other MRTs thereby aligning its deferral rules with those of the FCA.

2.3 Several respondents supported shorter minimum deferral periods that align UK deferral rules more closely with the approach in other countries, and welcomed pro-rata vesting for SMFs. Two respondents recommended further shortening of deferral periods: one proposed 3 years, suggesting that most adverse outcomes from risk-taking tend to occur within that time. Another suggested 3 years for non-SMF MRTs and 4 years for SMFs. One respondent provided additional data to the PRA indicating that in a selected set of firms many adverse events had tended to emerge within 3 years. One respondent was not opposed to shorter deferral periods but said this should not incentivise a risk-taking culture which is not aligned with the long-term health and performance of the company.

2.4 Having considered the responses, the regulators have decided to amend the final rules on deferral. The regulators will now require a 4-year minimum deferral period to be applied to all relevant MRTs, including SMFs. The PRA considers this change to be within its risk tolerance in light of a number of factors including its internal analysis of the time elapsed between individuals taking decisions in firms and adverse outcomes being discovered, which shows that 70% of adverse outcomes of risk taking in recent years have tended to be discovered within 4 years, but less than half emerged within 3 years.

2.5 Additionally, as set out in paragraph 7.4 of CP16/24 the regulators consider that while shorter deferral periods could lead to a higher possibility of risk events emerging after the end of the deferral period, the view of the regulators is that this can be adequately mitigated by existing regulatory policies including:

• The regulators expect firms to freeze the vesting of all awards made to individuals undergoing internal or external investigation that could result in performance adjustment until such an investigation has concluded and the firm has made a decision and communicated it to the relevant employee.
• Firms are also not prevented from applying adjustments to the extent that the relevant individuals have variable remuneration capable of reduction, even where this does not relate to performance in the year in which the misconduct or risk management failure occurred or came to light.

2.6 The regulators are setting a minimum deferral period; where appropriate, a firm can tailor the deferral period to ensure robustness according to the firm’s risk profile. This may mean a firm chooses to continue longer deferral periods for material risk takers.

2.7 The PRA also considers that a single deferral period for all MRTs simplifies the remuneration regime making the rules easier to understand and apply, thus strengthening the effectiveness of the regime. While a uniform 4-year deferral period removes the distinction between SMFs and other MRTs, the regulators consider that the broader remuneration framework including enhanced clawback periods and new remuneration accountability rules for Senior Managers, and the Senior Managers Regime itself, continue to support robust individual accountability for SMFs.

2.8 The changes also bring the UK regime more closely in line with the majority of overseas jurisdictions, thereby supporting the competitiveness and growth of the UK economy. The FCA agrees with this assessment.

Deferral rates

2.9 Current rules require firms to defer either 40% or 60% of bonuses, with the level depending on pay and seniority. In CP16/24, the PRA proposed increasing the threshold at which 60% of variable remuneration must be deferred from £500,000 to £660,000.

2.10 Four respondents welcomed this change but also raised concerns about cliff-edge effects for those with bonuses close to the threshold. Three proposed a marginal approach for deferral rates with 40% of bonuses being deferred up to £660,000 and 60% above that level to smooth the impact for individuals near the threshold. Separately, one respondent requested that the PRA increase the variable remuneration threshold for when MRTs are required to defer 60% of remuneration (instead of 40%) further than £660,000, to £1 million.

2.11 The regulators have decided to introduce a marginal deferral system with 40% of a bonus to be deferred up to £660,000 and 60% above that level. The regulators consider that this marginal approach will introduce greater proportionality while maintaining strong deferral expectations for very high earners ensuring that incentives of those who can expose a firm to material levels of risk are most strongly aligned with the long-term health of the firm. The PRA has therefore amended Remuneration 15.18 and paragraph 5.44 of SS2/17, to reflect this change.

Payment in instruments

2.12 In CP16/24, the PRA did not propose changes to the current requirement that at least 50% of bonuses be paid in instruments, split equally between upfront and deferred portions.

2.13 However, five respondents requested greater flexibility in this area. While supporting the 50/50 overall split between cash and instruments, they proposed allowing an increase in the proportion of deferred instruments. Respondents noted such a change would improve alignment with other frameworks, such as the FCA’s MIFIDPRU Remuneration Code (SYSC 19G).

2.14 In response, the PRA has decided to amend its rules and expectations to remove the requirement for an equal split between cash and instruments in the upfront and deferred portions. Firms may now pay a greater proportion of cash up front, provided that the deferred portion contains a correspondingly higher proportion of instruments. The PRA has deleted Remuneration 15.16 and introduced a new paragraph 5.44B in SS2/17, setting out its expectation that it is good practice for the deferred portion of pay to contain a higher share of instruments.

2.15 Both regulators consider that this change strengthens the link between pay and performance as deferred non-cash awards are more sensitive to firm performance – thereby advancing safety and soundness for UK firms – while bringing the UK in line with international practice and supporting the competitiveness and growth of the UK economy.

Retention periods

2.16 In CP16/24, the PRA proposed removing the retention period for deferred instruments, with no change to the 12-month retention period for upfront instruments.

2.17 Eight respondents supported removing the retention period for deferred instruments, citing simplification and improved attractiveness of variable remuneration. Five respondents opposed maintaining the retention period for upfront instruments, arguing it is perceived as an additional deferral, negatively affecting cash flow and competitiveness. Two respondents sought clarification on the scope of the changes, including whether they apply to all variable remuneration and across the MRT threshold. One respondent noted an apparent contradiction between the PRA’s statements – on the one hand, not expecting retention for deferred instruments, and on the other, suggesting firms retain discretion over retention policies. One respondent queried whether a 'meaningful retention period (eg 1 year)' would allow for a shorter period than the 12 months stipulated in the EU Guidelines.

2.18 One respondent highlighted implementation challenges for non-listed firms that cannot deliver vesting instruments immediately. Six respondents proposed alignment with other remuneration frameworks including the FCA’s MIFIDPRU Remuneration Code (SYSC 19G).

2.19 The PRA has amended paragraph 1.9B of SS2/17 to clarify that as is currently the case, a 1-year retention period still applies to upfront instruments. The PRA considers that this requirement prevents immediate sale of instruments, thereby preserving the prudential value of paying in instruments in maintaining alignment of incentives. The PRA considers that concerns over the retention period for upfront instruments are mitigated by the flexibility introduced in this policy statement regarding the composition of upfront pay (see paragraph 2.14).

Chart 1: Final Changes to Deferral Rules

Footnotes

• Chart 1 illustrates the impact of the PRA’s policy as set out in this PS on the rate at which £1m in variable pay would vest for a senior manager. It compares this to the vesting rate under the proposals set out in CP16/24, and under the pre-existing rules. This vesting profile will vary depending on the amount of variable pay received and decisions taken by individual firms implementing the reforms.

Dividend and interest payments

2.20 Nine respondents supported allowing payment of interest or dividend payments on deferred remuneration to enhance the attractiveness of UK pay packages to MRTs.

2.21 Four respondents asked whether interest could be paid on deferred cash awards. One requested that regulatory language refer to ‘deferred remuneration’ rather than only ‘deferred instruments’. Another sought clarity on the timing and method of dividend payments. One respondent noted that the FCA’s MIFIDPRU Remuneration Rules currently restricts such payments before vesting and recommended removing this restriction for consistency.

2.22 The regulators acknowledge broad support for allowing interest and dividend payments on deferred remuneration. The PRA confirms that, as is currently the case, interest may be accrued on deferred cash awards. The FCA is also currently reviewing its solo remuneration rules (see details in Chapter 8) and will consult on any potential changes in due course.

2.23 To improve clarity, the PRA has revised paragraph 1.9C of SS2/17 to explicitly refer to ‘deferred remuneration’. The PRA does not consider that it is necessary to provide guidance on acceptable timing and methods for dividend payments as this is an operational matter to be left to firms' discretion.

Retention award approvals

2.24 The PRA did not consult on retention awards. However, three respondents noted that currently prior approval of retention awards by the PRA makes UK firms outliers internationally and has caused issues with staff retention.

2.25 The PRA has amended paragraph 5.39 of SS2/17, to remove the expectation for firms to notify supervisors of retention awards. Instead, firms should continue to disclose these awards through their remuneration policy statements (RPS), enhancing flexibility and alignment with global practice. The PRA will continue to monitor retention awards through RPS documents and requests for information, where appropriate, enhancing safety and soundness while promoting efficiency.

2.26 Taking the changes discussed in this chapter together, the regulators consider that the set of additional deferral changes could further incentivise firms to award a greater proportion of remuneration in the form of variable remuneration as opposed to fixed pay. This could result in a greater proportion of remuneration being subject to the regimes’ incentive-setting requirements, which can help align remuneration with prudent risk-taking principles of effective risk management, good conduct, and the long-term interests of the firms. Additionally, potential decreases in fixed costs could improve a firm’s ability to manage its costs and absorb losses in a downturn, similarly promoting the PRA’s primary objective of safety and soundness in firms.

3: Identifying material risk takers

3.1 In CP16/24, the PRA proposed:

• a new single quantitative MRT identification threshold whereby firms are expected to consider identifying as MRTs individuals within their 0.3% of highest earners, with the deletion of all other quantitative MRT identification thresholds from the PRA Rulebook;
• the removal of the expectation for firms to seek regulatory approval to exclude any individuals solely identified by quantitative criteria from MRT categorisation; and
• enhanced governance expectations for firms to ensure the involvement of the relevant functions throughout the MRT identification process.

Exclusions approvals

3.2 The PRA proposed removing the need for firms to seek approval to exclude individuals from MRT categorisation based solely on quantitative criteria and the removal of these criteria from the Remuneration Part of the PRA Rulebook. Enhanced governance expectations were also outlined to ensure relevant functions are engaged throughout the identification process. Nine respondents commented on this chapter. While all were supportive, they requested clarification on certain specific themes, detailed below.

Involvement of committees

3.3 Four respondents welcomed clarification on what the regulators’ expectations are in relation to the involvement of remuneration and risk committees. These respondents queried their ‘on-going’ and everyday involvement, envisaging that the PRA does not expect the involvement of risk committees in day-to-day MRT assessment outcomes. Linked to this, one respondent stated that the regulators should clarify that the role of the remuneration committee is to oversee – rather than be involved in – the design of MRT methodology. Having considered this responses, the PRA has:

• Amended paragraph 3.37 of SS2/17, to make clear that the management body is required to oversee and approve the design of the MRT methodology, and that where a remuneration and risk committee are established, the remuneration committee should fulfil these responsibilities, with appropriate consultation of the risk committee.
• The PRA has incorporated the text of the originally proposed paragraph 3.38 into paragraph 3.37.

Involvement of Chief Risk Officer and other functions

3.4 Two respondents queried the level of involvement of the Chief Risk Officer or SMF4 in making decisions in MRT identification noting that this seemed a more operational matter. These respondents shared that this designation of responsibility should be a general expectation that allows for appropriate delegation and not be mandatory given firms already have specific structures in place.

3.5 Two respondents sought clarity on the role and responsibilities of other functions, including legal functions. One respondent wanted to clarify the role of the CRO and wanted a definition for ‘risk owners’. An additional respondent noted that the wide involvement of different individuals/functions would increase administrative burden, and that this activity should stay in the remit of remuneration committees.

3.6 Having considered the above – the PRA has amended Remuneration Rule 7.3A and paragraphs 3.3, 3.38, and 5.12A of SS2/17. Notably, the PRA has replaced the expectation for 'active involvement' of the individual responsible for the overall management of the risk controls of a firm in the design of the MRT identification methodology with an expectation of oversight. The PRA has made these amendments to provide clarity for firms and reduce any implementation costs of the policy.

3.7 The PRA does not expect the individual responsible for the overall management of the risk controls of a firm to have a day-to-day involvement in MRT identification activities. However, the PRA considers that the relevant individual should, through their oversight, have an active role in ensuring that the MRT identification process is suitable and effective.

3.8 The PRA also notes that Senior Managers can delegate their responsibilities. Firms are reminded that as set out in paragraph 5.17 of SS28/15 – Strengthening individual accountability in Banking: when delegating responsibilities ‘Senior Manager Conduct Rule 3: ‘You [SMFs] must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.’

3.9 Additionally, the PRA considers that business areas are risk owners. Firms often adopt the three lines of defence model when designing their risk management framework and controls. In this framework, the business areas are the first line of defence, independent risk management units are the second line of defence, and internal audit is the third line of defence. The PRA does not consider a definition of ‘risk owner’ or ‘business area’ appropriate in this context. The PRA considers that it is important that the relevant areas are consulted in the MRT identification process to ensure that it is effectively used as a risk management tool.

Removal of quantitative identification criteria

3.10 The PRA proposed a new expectation in paragraph 3.3 of SS2/17, which sets out a single quantitative MRT identification threshold. Firms are expected to consider in identifying MRTs, individuals within 0.3% of highest earners within a firm.

3.11 Ten respondents supported the new quantitative MRT identification threshold, considering it clearer and simpler than the previous one. One respondent requested additional guidance for calculating the top 0.3% of highest earning staff. This respondent also asked for some worked examples and/or guidance more generally.

3.12 The PRA considers that the current threshold has been in operation for several years. The PRA therefore considers that further guidance is not required.

4: Enhancing proportionality for MRTs

4.1 In CP16/24, the PRA proposed:

• raising the pay threshold below which firms may disapply certain remuneration rules from £44,000 variable remuneration to £660,000 total pay (and variable pay no more than 33% of total pay);
• 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;
• amending Remuneration 16.7 to update the voiding provision threshold in line with the new threshold proposed for rule 15.A1;
• deleting the defined term ‘higher paid material risk taker’; and
• deleting the defined term ‘significant firm’.

The new individual MRT proportionality threshold

4.2 All respondents supported the proposed changes to the MRT proportionality threshold where some MRTs may be exempt from certain remuneration rules including deferral, though some recommended adjustments. Five respondents supported the £660,000 total remuneration threshold rather than a variable remuneration threshold of £44,000, but argued that the 33% cap on variable pay is too strict, as many MRTs would still face all remuneration requirements. One suggested raising the threshold to 40%, while three others proposed setting a fixed limit of £220,000 variable pay instead.

4.3 Another respondent argued that MRT remuneration policy should be linked to the firm's proportionality level, rather than just the qualitative and quantitative MRT thresholds in SS2/17.

4.4 The PRA considers that it is appropriate to retain the 33% aspect of the test, and make no further changes to the proportionality criterion from the consultation proposals. The key aim of this aspect of the test is to ensure that employees who are identified as MRTs and whose bonuses represent a higher proportion of their remuneration and subsequently might be particularly incentivised to take imprudent decisions, are subject to remuneration requirements that align their incentives with prudent risk taking.

4.5 The PRA notes that it currently applies the remuneration regime in a way that seeks to be proportionate to firms’ size, internal organisation, and the nature and scale of their activities. For example, ‘Small firms’ are not currently required to apply certain rules on remuneration structures to their MRTs including payment in instruments, deferral, malus and clawback or discretionary pension arrangements.

Time based MRT exemptions

4.6 Six respondents referenced a historical exemption from rules on deferral and payment in instruments for employees who were in an MRT role for less than 3-months, which was removed from SS2/17. They requested that this exemption be reinstated, noting that holding these staff to full remuneration standards was commercially impractical.

4.7 Having considered the responses the PRA considers that it would be proportionate to reinstate this exemption by reinstating previously deleted paragraphs 3.17 and 3.18 of SS2/17. The PRA has also made consequential amendments to paragraphs 3.11, 3.12, 3.13, and Table E of SS2/17.

The removal of the ‘higher paid MRTs’ ‘significant firm’ categories

4.8 The PRA’s introduction of a higher individual proportionality threshold resulted in the PRA proposing the deletion of the categories of ‘higher paid MRTs’ and ‘significant firm’ that were introduced in CRD V implementation.

4.9 All respondents were supportive of this removal and its intended effect of significantly simplifying the current regime.

5: Remuneration and individual accountability

5.1 The PRA proposed changes to the Remuneration Part and to SS2/17, to more closely link the accountability regime with the remuneration regime by:

• introducing a rule and expectations for firms to consider adjusting the remuneration of accountable individuals up the management chain in the event of adverse outcomes;
• introducing a rule and expectations to ensure that senior management are accountable for their performance against PRA supervisory priorities; and
• clarifying expectations for Remuneration Committees with regards to managing adverse risk events.

5.2 All respondents were overall supportive of the proposals and welcomed the emphasis on aligning remuneration with risk-taking outcomes and individual responsibilities. Some respondents had some specific concerns, and others sought clarification on specific details, both outlined below.

Performance and risk adjustments

5.3 One respondent, while agreeing that performance adjustments should be considered even when no explicit loss occurs, questioned if this should apply universally. Regarding Remuneration rule 11.4A, another respondent advocated for separate treatment of ex ante and ex post risk adjustments in regulations and greater flexibility for firms. The respondent also recommended that risk adjustment criteria remain non-exhaustive and suggested removing ‘seniority’ from rule 11.4A and ‘calculate’ from rule 11.7 to better reflect actual remuneration practices and avoid unnecessary restrictions.

5.4 Having considered the responses, the PRA has decided not to introduce additional prescriptiveness regarding when firms should apply performance adjustments. The PRA has decided to proceed with the proposals as consulted on with no additional changes.

Managerial accountability through remuneration

5.5 Three respondents supported requiring firms to consider adjusting remuneration up the management chain after adverse outcomes but questioned the ambiguity of ‘reasonable’ adjustments in 11.4A and suggested clearer definitions or guidance to avoid misinterpretation.

5.6 Two respondents wanted clarification on how pay adjustments up the chain should be determined, particularly in cases where connections to adverse outcomes are unclear, including situations influenced by external factors like market volatility or geopolitical events. One respondent requested guidance on the extent to which adjustments should be considered for non-MRTs.

5.7 One respondent requested consistent use of the term ‘responsibilities,’ noting discrepancies between the proposed rule 11.7 and Remuneration rule 15.2.

5.8 The PRA notes the concept of ‘reasonable steps’ is set out in SS28/15 – Strengthening Individual accountability in banking, which explains the PRA’s expectations on what reasonable means in these circumstances.

5.9 Regarding additional clarity on adjustments up the chain and guidance on what constitutes a threshold for requiring an adjustment, the PRA considers that given the broad breadth of business models of firms subject to the remuneration part, it would not be appropriate to provide additional guidance on making adjustments up the management chain, or on a threshold for the application of remuneration adjustments. This would fetter firms’ discretion and ability to respond flexibly to issues as they arise, hindering the PRA’s objective of ensuring the safety and soundness of regulated firms. The PRA further notes that there is existing guidance in Chapter 4 of SS2/17, covering the application of performance adjustments. Therefore, the PRA has decided not to publish further guidance on remuneration adjustments.

5.10 The PRA notes that the use of responsibilities in Remuneration 15.2 is in relation to fixed remuneration in contrast with the use of responsibilities in Remuneration 11.7 which is in relation to variable remuneration.

Senior management accountability for PRA supervisory priorities

5.11 Three respondents, while supporting this proposal, raised concerns about increased administrative workload, specifically two respondents noted that more frequent updates to Form J might be required due to changes in SMF Statements of Responsibilities (SoRs). Two warned this could lead to a 'tick-list' mentality, suggesting only significant actions already assigned should be added to the SoR.

5.12 Two respondents felt that while each SMF should be accountable for actions, firms should decide the allocation of responsibility internally.

5.13 Several respondents sought additional clarity. One requested clarification on including FCA supervisory priorities in Senior Managers’ SoRs and clarity on how supervisory priorities should be classified. Two found it unclear which actions are considered material or urgent, fearing all actions might be included in SoRs by default. One respondent argued against requiring SoR amendments if the issue is already covered under existing senior manager accountability. Finally, another sought guidance on expected detail levels in SoRs – often found in job descriptions – and on interpreting and allocating SMF responsibility for supervisory priorities.

5.14 The PRA notes that paragraph 2.47E of SS28/15, sets out that the PRA generally expects material or urgent actions requested in a Periodic Summary Meeting (PSM) letter to be reflected in relevant SoRs.

5.15 However, having considered the responses, the PRA has amended paragraph 4.4B of SS2/17, to reflect that for remuneration purposes, material or urgent PSM actions do not need to be recorded in an SMF’s SoRs but must be adequately documented. Firms will be expected to provide these records to the PRA if requested. The PRA considers that this will ease any potential administrative burden on firms.

Clarity on PRA expectations for Remuneration Committees when making variable remuneration adjustments

5.16 One respondent questioned whether the PRA expects an accountability assessment to be conducted for every adverse outcome. Another questioned whether this would remain at the discretion of the organisation. Both respondents ultimately welcomed further guidance.

5.17 Having considered these responses, the PRA has decided to make no changes in its final policy. The PRA considers that the degree of materiality of an incident required for an accountability assessment is a matter of firm discretion, and that this operational flexibility for firms should not be restricted.

6: Data reporting

6.1 To support large firms in documenting their remuneration policies, practices and procedures, the regulators ask them to complete Remuneration policy statement (RPS) tables. Under PRA rules, firms are also required to submit the EU-originated High Earners and Benchmarking Reports. The regulators did not consult on any changes to these data but received responses in these areas.

6.2 Two respondents stated that High Earners and Benchmarking Reports have burdensome, duplicative reporting requirements, while another said regulators should set out the rationale for these reports. Five respondents found RPS table submissions onerous and suggested simplifying or removing them, especially mid-year submissions like Table 1a (draft MRT list) and Table 8 (proposed exclusions), following the PRA's proposal to end prior approval for MRT exclusions. One respondent said public disclosures of remuneration policies often overlap with the RPS questionnaire. Another respondent noted that firms no longer review final-year RPS tables since non-objection for variable pay is not required, making the process resource-intensive and reliant on management's assurances.

6.3 The PRA considers that changes in response to these comments are beyond the scope of this consultation and would have delayed the publication of the final policy. However, the regulators do plan to consider broader changes to these regulatory reporting requirements and RPS tables in the future. Ahead of any future consultation on remuneration data, the PRA is providing interim guidance for firms when submitting RPS tables to the regulators after the relevant application date of the changes set out in this policy statement. This guidance can be found on the Bank website under the ‘Strengthening Accountability’ section. Firms do not need to revise and resubmit already submitted RPS tables to the regulators.

7: Changes to the FCA Handbook Chapter SYSC 19D and Buy-outs Rule

7.1 In the joint CP, the FCA specifically proposed to change the structure of SYSC 19D so that it largely cross-refers to the PRA’s Remuneration Rules thereby:

• removing the need for the FCA to maintain its own set of parallel remuneration rules;
• ensuring the PRA’s proposed rule changes in this CP would automatically apply to firms in scope of the FCA’s dual-regulated firms Remuneration Code because of the proposed cross-reference to the PRA Remuneration Rules in SYSC 19D; and
• ensuring that where the FCA has decided to keep specific rules relating to remuneration, or where the FCA provides specific guidance explaining how firms in scope should apply the remuneration rules, these will remain in SYSC 19D.

7.2 The FCA also proposed exempting dual regulated firms that meet the provisions under SYSC 19D.3.2BR in the current rules (referred to as ‘small firms’) from requirements related to buy-outs.

7.3 The above would also result in consequential changes to the FCA’s non-Handbook guidance:

• • ‘FG23/6: General guidance on the application of ex post risk adjustment to variable remuneration’ (link to this is provided in appendix 5); and
  • withdrawal of the following FCA non-Handbook guidance:
    • ‘FG23/4: Dual-regulated firms Remuneration Code (SYSC 19D): Frequently asked questions on remuneration’; and
    • ‘FG23/5: General Guidance on Proportionality: The Dual regulated firms Remuneration Code (SYSC 19D)’.

7.4 Respondents to the FCA’s proposals were strongly supportive of the proposed changes, with respondents noting that the proposals could reduce compliance costs and operational burdens, provide greater flexibility and improve clarity. One respondent particularly welcomed the alignment of the rules on buy-outs. Although one respondent additionally requested further consolidation, with all FCA rules and guidance moved into the Remuneration Part of the PRA Rulebook and SS2/17, respectively. Having considered the responses, the FCA has decided to proceed with its proposals as consulted on. The FCA considers that the cross-reference in SYSC 19D to the PRA Remuneration Rules simplifies the regulators’ rulebooks by removing duplication as much as possible. Where the FCA has retained rules or guidance in SYSC 19D, this is because these are FCA specific rules relating to remuneration, or where the FCA is providing specific guidance explaining how firms in scope should apply the remuneration rules.

7.5 As was explained in Chapter 2 of the CP, the FCA’s change is not a policy change, and it does not consider that this change will have a material impact on firms beyond making the regulators’ rulebooks simpler and avoiding duplication. As is the case now, dual-regulated firms will remain authorised and regulated by both the FCA and the PRA.

7.6 The main effect of the FCA’s cross-referencing in SYSC 19D to the PRA Remuneration Rules will be that the requirements contained in the PRA Remuneration Rules will apply to a dual-regulated firm as if they were FCA rules. The FCA will enforce and supervise against the PRA’s Remuneration Rules to which it cross-refers as if they were FCA rules.

7.7 The FCA will continue to maintain a strong focus on the overall aims of the remuneration rules to promote effective risk management in the long-term interests of the firm and its customers, to support positive behaviours and healthy firm cultures, and to discourage behaviours that can lead to misconduct and poor customer outcomes.

7.8 Additionally, the FCA is withdrawing its bi-annual letter that it sends to Remuneration Committee Chairs. This is in line with the changes described in this chapter and more recent FCA changes to simplify its supervisory letters in support of the FCA’s commitment to smarter, more effective regulation.

8: Wider feedback

8.1 Some respondents noted that the FCA should implement changes to its remuneration rules for solo-regulated firms following changes the regulators have and are making to requirements for dual-regulated firms. As noted in the FCA’s recent Call for Input looking at future regulation of alternative fund managers, the FCA is reviewing the operation and effectiveness of its solo remuneration rules: the AIFM Remuneration Code (SYSC 19B), the UCITS Remuneration Code (SYSC 19E) and the MIFIDPRU Remuneration Code (SYSC 19G). The FCA is actively engaging with industry and other stakeholders to understand the value and costs of these rules. It is considering the future shape of these remuneration rules, effectively balancing risks to investors and markets with the impact on firms while continuing to deliver the FCA’s objectives including supporting growth and competitiveness. This work will continue throughout 2025, and the FCA will provide an update in early 2026.

8.2 The regulators also received further additional responses which fall outside the scope of the consultation. Changes have not been made in response to these comments either because the regulators consider that no changes are required or because the regulators consider that taking forward these responses would have delayed the publication of this policy statement. The regulators may consider the responses more broadly in the future.

9: Accountability Framework

9.1 This PS contains the regulators’ final policy, as follows:

• amendments to the Remuneration Part of the PRA Rulebook (Appendix 2)
• updated SS2/17 – Remuneration (Appendix 3); and
• changes to the FCA’s ‘SYSC 19D Dual-regulated firms Remuneration Code’ (Appendix 4) and related non-Handbook guidance (Appendix 5).

9.2 This PS is relevant to banks, building societies, and PRA-designated investment firms, including third-country Capital Requirements Regulation (CRR) firms which are subject to the Remuneration Part of the PRA Rulebook and to the FCA SYSC 19D: Dual-regulated firms Remuneration Code. This PS is not relevant to credit unions and insurers.

9.3 While this PS does not affect FCA solo-regulated investment firms that are subject to other remuneration codes, it will be of interest to these firms as well as to solo-regulated investment firms that are members of a group to which the Dual-regulated firms Remuneration Code applies on a consolidated basis.

9.4 In determining the final policy, the regulators considered representations received in response to consultation, publishing an account of them and the regulators’ response (‘feedback’). Details of any significant changes are also published. In this PS, the ‘Summary of responses’ contains a general account of the representations made in response to the CP and the ‘Feedback to responses’ chapter contains the regulators’ feedback.

9.5 When making rules, the regulators are required to comply with several legal obligations. In CP16/24, the PRA published its explanation of why the rules proposed by the CP were compatible with its objectives and with its duty to have regard to the regulatory principles.^{footnote [3]} The explanations provided in the CP of how the PRA’s proposals were compatible with its objectives, and of how they have been affected by matters to which the PRA has been required to have regard, remain appropriate in respect of the final policy and rules, and so have not been further amended.

9.6 Similarly, the FCA’s compatibility statement (Chapter 9 in CP16/24) explained why the proposals in the CP were compatible with the requirements in FSMA including its statutory objectives. Those explanations in the compatibility statement also apply to the final policy and rules in this policy statement.

9.7 When making rules applying to certain holding companies, the PRA must also publish a summary of the purpose of the rules.^{footnote [4]} The changes aim to make the UK remuneration regime more effective, simple, proportionate and better tailored to the UK market by:

• reducing the number of MRTs;
• simplifying the approach for identifying MRTs;
• bringing rules on bonus deferral more in line with international practice; and
• ensuring that bonuses better reflect risk taking outcomes and individual responsibilities.

10: Cost benefit analysis

10.1 The regulators’ cost benefit analyses (CBA) of the proposed policy were published in CP16/24. The regulators did not receive responses on their respective CBAs as published in CP16/24. Where the final rules differ significantly from those in the consultation paper, FSMA 2000 requires the regulators to publish details of those differences along with an updated CBA.

10.2 Overall, the regulators have taken into account the impact of the final rules on their respective CBAs. They consider that the policy changes (as described in this PS) may further enhance UK competitiveness but are not expected to impose additional costs on firms. They still consider the proposals and their associated costs to be sufficiently proportionate with the benefits continuing to outweigh the costs. Therefore, both regulators consider that the CBAs as consulted on remain appropriate. The regulators’ assessment is provided below:

Joint policy changes

10.3 On deferral periods, the regulators consider that further shortening these helps attract talent and reduces compliance costs through a single deferral period for all MRTs.

10.4 Allowing firms to pay more cash upfront increases the instrument component of deferred remuneration should firms choose to take advantage of this flexibility. This could lower the current administrative burden of administering retention periods on instruments awarded upfront, particularly for firms with unique instruments.

10.5 Introducing proportionality in calculating how much variable remuneration is subject to deferral removes cliff-edge incentives for staff just below the threshold. This may lead to higher variable pay to fixed pay ratios, increasing the proportion of pay that is subject to rules on remuneration structures given the removal of cliff edge incentives.

10.6 Exempting individuals who have been MRTs for less than three months reduces the number subject to deferral and related requirements, lowering compliance costs.

10.7 Giving firms the option to apply the deferral changes to the current and previous performance years means firms would be able to benefit immediately if they wish to do so, enhancing UK competitiveness. While some costs may arise of such implementation, firms can opt out of early adoption.

10.8 Removing the requirement to pre-notify retention awards simplifies compliance, reducing the need for ongoing regulatory approval. It also enables firms to respond more flexibly to retention needs, supporting safe and sound operations.

10.9 Simplifications to MRT governance and senior accountability make the rules easier to implement. This supports effective MRT identification as a risk management tool and strengthens senior accountability – especially important given fewer MRTs, shorter deferral periods, and a more attractive deferral package.

10.10 The FCA also expects there will be conduct benefits in addition to the benefits described above. In particular, the FCA expects that changes to enhance individual accountability and governance will have a positive effect on the overall robustness of the regime, leading to healthier firm cultures and therefore, better conduct.

10.11 As noted in paragraph 10.8 of CP16/24, the final policy changes may be particularly beneficial for internationally active firms, helping simplify and align group-wide remuneration frameworks.

10.12 The PRA considers that the changes to its draft policy will overall enhance competitiveness, increasing the benefits of the proposals. Any change in costs compared to the original CBA are expected to be negligible. Therefore, the CBA exemption under s138L of FSMA was applied.

FCA specific changes

10.13 As was explained in Chapter 11 in CP16/24, as the FCA will cross-refer to the rules the PRA is changing, the impact on firms of the changes is principally driven by the PRA’s changes (as explained in the PRA’s CBA in CP16/24). The incremental costs incurred from the FCA’s specific changes will be of minimal significance and of a lesser magnitude than the ones driven by the PRA’s changes. Therefore, the CBA exemption under s138L of FSMA was applied.

10.14 The FCA also proposed to change the rules within SYSC 19D3.45R to align with the PRA on remuneration buy-outs policy for small firms. The FCA has not made any changes to this proposal since the consultation. Based on the assessment of costs and benefits, the FCA expects the costs of this proposal to be of minimal significance, so the CBA exemption under s138L of FSMA was also applied. The PRA had already introduced an identical exemption in 2023 (PS16/23). This change therefore re-aligns FCA and PRA rules, simplifying the regime and making regulation more proportionate.