Regulators consult on bonus restriction reform

The PRA and FCA are consulting on reducing the restrictions surrounding bonuses of senior bankers. As noted in the Mansion House speech, the current UK practice makes it an outlier and may be damaging competition and attraction of talent. The regulators propose to:

• reduce the bonus deferral period for the most senior individuals to 5 years (for some it is currently 8), and for less senior individuals within the regime to reduce the period to 4 years;
• allow part-payment of bonuses from year one (currently year three);
• removing guidelines that originally stemmed from the EU that banned payment of dividends or interest on deferred bonuses awarded in shares and banned sales of such shares for up to a year;
• reduce the number of individuals who are “material risk takers” subject to the rules, make the approach to categorising individuals easier and give firms more discretion on who to apply the rules to. In principle there will be a single quantitative threshold covering individuals within a firm’s 0.3% highest earners who are not already captured by qualitative criteria;
• ensure firms consider adjusting pay when there are failures in risk management;
• more closely align the requirements with the SMCR so firms first consider performance against supervisory priorities when considering bonuses; and
• in the FCA’s case, remove rules in its Handbook that duplicate PRA rules.

Consultation closes on 13 March 2025.