On 19 December 2022, the FCA published Consultation Paper CP22/28: Remuneration; Ratio between fixed and variable components of total remuneration.

In CP22/28, the FCA sets out its joint proposed rule changes with the PRA to remove the existing limits on the ratio between fixed and variable components of total remuneration (the ‘bonus cap’). The aim of CP22/28 is to strengthen the effectiveness of the remuneration regime by increasing the proportion of compensation that can be subject to the incentive setting tools within the framework. In the FCA’s view, over time these changes should also help remove unintended consequences of the bonus cap, particularly the growth in the proportion of the fixed component of total remuneration, which reduces a firm’s ability to adjust costs to absorb losses. The FCA decided to consult jointly with the PRA to avoid unnecessary duplication.

The proposals in CP22/28 would result in the removal of the current bonus cap requirements through:

  • Changes to the Remuneration part of the Disclosure (CRR) part of the PRA Rulebook (Appendix 1 and Appendix 4), and to Senior Management Arrangements, Systems and Controls (SYSC) 19D: Dual-regulated firms Remuneration Code that is part of the FCA’s Handbook (Appendix 2); and
  • Updates to the PRA’s Supervisory Statement 2/17 ‘Remuneration’ (Appendix 3).

The deadline for responses to this consultation is 31 March 2023.