UK regulators have confirmed sweeping changes to banker pay, cutting the maximum bonus deferral for senior managers from eight years to four and introducing greater flexibility over how awards are structured.

The Prudential Regulation Authority and Financial Conduct Authority said the rules, effective from 16 October 2025, will apply to 2025 pay awards and any earlier awards not yet fully vested. The PRA added that vesting for senior roles can now begin on a pro‑rata basis from year one, rather than year three.

“These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis,” said Sam Woods, deputy governor of prudential regulation and chief executive of the PRA. “These changes are the latest example of our commitment to boosting UK competitiveness.” The FCA’s deputy chief executive Sarah Pritchard said: “Streamlining our remuneration rules by 70 per cent will cut unneeded complexity and make them simpler to follow… The new rules also mean senior managers will continue to follow our high standards and remain on the hook where poor decisions affect consumers and markets.”

The reforms go further than proposals consulted on in 2024. The PRA will apply a single four‑year minimum deferral period to all material risk takers and introduce a marginal deferral approach: only 60 per cent of the portion of a bonus above £660,000 must be deferred, rather than 60 per cent of the entire award above that threshold. Regulators said the shift should reduce cliff‑edge effects while maintaining stronger deferral expectations for very high earners.

Firms will also have more latitude over the mix of cash and instruments. The PRA has removed its equal split requirement between upfront and deferred portions, allowing more cash to be paid immediately provided the deferred component contains a higher share of instruments. Deferred remuneration can accrue interest or dividends, and the PRA has clarified it is not expecting retention periods for deferred instruments, while keeping a one‑year retention on upfront instruments.

Industry bodies welcomed the changes. UK Finance said a “more proportionate approach… will help with attracting global talent and support the competitiveness of the UK’s financial services sector.” Regulators argued the shorter deferral and structural flexibility align the UK with major jurisdictions, including the United States and European Union markets where typical deferral spans three to five years.

The Bank of England said the package is intended to strengthen links between performance, risk outcomes and pay, and may help reverse a drift toward higher fixed remuneration by making variable pay more workable. The FCA will also cut more than 70 per cent of overlapping handbook rules by cross‑referring to the PRA’s framework.

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