The PRA and FCA have finalised rule changes following their consultations on changes to the remuneration rules for banks, building societies and designated investment firms. The aim of the changes, which met with support from respondents, is to make the regime more effective in embedding good risk management practices, while being easier to implement than the current requirements and being more proportionate and better geared to the UK marketplace. The main changes and consequences are:
- reducing the number of individuals who are Material Risk Takers;
- simplifying how firms identify MRTs;
- bringing rules on bonus deferral more into line with international practices;
- ensuring that bonuses better reflect risk taking outcomes and individual responsibilities;
- removing the FCA’s set of parallel remuneration rules, and ensuring that PRA changes will automatically apply to firms within scope of the dual-regulated firms’ Remuneration Code; and
- keeping the rules the FCA retains on remuneration within SYSC 19D.
The changes broadly follow what the regulators proposed, but the regulators have decided to make all MRTs subject to the same 4-year minimum deferral period (reduced from the current 7 or 5 depending on the SMF in question). The new rules will also give firms flexibility over what proportion of bonus can be paid in cash up front and allowing more proportionate calculation of the share of bonuses that must be deferred.
Most of the changes take effect on 16 October, with some being able to be used, if firms wish, in relation to performance years which are ongoing on 15 October.