PS21/25 – Remuneration Reform
Executive Summary
PS21/25 implements reforms to PRA remuneration rules for banks, building societies, and PRA-designated investment firms, simplifying Material Risk Taker (MRT) identification, aligning deferral periods with international standards (4 years for non-SMF MRTs and 5 years for SMFs), and enhancing links to individual accountability under the Senior Managers Regime (SMR). These changes matter as they reduce regulatory burden, increase flexibility in bonus structures (e.g., marginal deferral rates and cash payments), and promote competitiveness while maintaining risk alignment, potentially reversing trends toward higher fixed pay. #
What Changed
- MRT Identification: Simplified quantitative threshold to the top 0.3% of earners (assessed against risk impact); qualitative criteria unchanged; raised proportionality threshold for disapplying rules from £44,000 variable pay to £660,000 total pay (with variable pay ≤33% of total); reintroduced exemption for MRTs serving <3 months. - Deferral Periods: 4-year minimum for non-SMF MRTs (previously varied); reduced to 5 years for SMFs (from 7 years); aligns with FCA and international practice. - Deferral Rates: Marginal system—40% deferral on first £660,000 of variable remuneration, 60% above; replaces cliff-edge approach for proportionality. - Upfront Cash Flexibility: Removed equal cash/instrument split requirement (Remuneration 15.16 deleted); deferred portion should have higher instrumen
What You Need To Do
- Review and update MRT identification processes, applying simplified top 0
- Revise remuneration policies for deferral (4/5 years, marginal rates), upfront cash flexibility, and instrument expectations; update bonus award calculations
- Embed SMR-linked adjustments
- For dual-regulated firms
- Optional early adoption for specified changes on 2025/unvested awards; document governance for RemCo approvals and board policies
- Update SS2/17 compliance, including new paras 5
Key Dates
Compliance Impact
Urgency: High – Mandatory from performance years post-16 October 2025 (e.g., 2026 for most), with immediate opt-in possible; impacts 2026 bonus cycles, requiring swift policy rewrites amid year-end planning. Matters due to simplified but ownership-heavy MRT processes, SMR-pay linkages raising accountability risks, and flexibility needing robust justification to avoid supervisory challenge; non-com
Who is Affected
Summary
Policy statement 21/25