On 26 November 2024, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) published a joint consultation paper (PRA CP16/24 / FCA CP24/23) on proposed reforms to the dual-regulated firms’ remuneration regime.
Background
In 2023, the PRA and FCA introduced changes to the remuneration regime to enhance proportionality for small dual-regulated firms and to remove the bonus cap. The proposals set out in this consultation paper are intended to complement those changes by reducing the restrictions on bonuses of senior bankers.
The proposed reforms
The reforms proposed in the consultation paper aim to maintain the remuneration regime’s overall structure and objectives while simplifying the regime and tailoring it more to the UK market, by:
- Reducing the number of individuals that are 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 (such as bonuses) more in line with international practice.
- Ensuring that variable remuneration better reflects risk-taking outcomes and individual responsibilities.
- Aligning the regulators’ rules on buy-outs in relation to small firms.
The FCA is also proposing to change the structure of its rules in SYSC 19D, and related guidance, by cross-referring to the Remuneration Part of the PRA Rulebook. This is intended to avoid unnecessary duplication and to ensure greater consistency and alignment of the regulators’ remuneration rules.
Next steps
The consultation closes on 13 March 2025.
The proposed changes would come into force the day after publication of the final policy (planned for H2 2025) and would apply to firms’ performance years starting after that date.