"The changes to banker bonus rules won’t trigger Wolf of Wall Street scenes in the square mile. They’re comparatively modest for one thing. But, relaxing the rules on banker bonuses is a smart move for the UK economy nonetheless"
- Alex Davies - Wealth Club
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have announced new rules that will allow senior bankers to receive bonuses more quickly and with greater flexibility, as part of a move to simplify remuneration regulations and boost UK competitiveness.
Under the updated framework, the deferral period for senior banker bonuses will be reduced from eight years to four. Firms will also be permitted to make partial bonus payments from the first year, rather than waiting until the third. The new rules, which come into effect on 16 October 2025, will apply to awards linked to the 2025 pay cycle and any other bonuses not yet paid.
Simpler rules and reduced red tape
The reforms will also cut more than 70% of the FCA’s remuneration requirements, allowing firms to rely primarily on PRA rules. This streamlining is designed to reduce duplication and improve clarity across the sector.
In addition, only 60% of any bonus amount above £660,000 will need to be deferred, compared with previous rules that applied deferral to the entire sum. Firms will have more discretion over how bonuses are paid, with relaxed requirements on the balance between cash and shares.
Sam Woods, deputy governor for prudential regulation and chief executive of the PRA, said: “These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis. These changes are the latest example of our commitment to boosting UK competitiveness.”
Sarah Pritchard, deputy chief executive at the FCA (pictured), explained: “Streamlining our remuneration rules by 70% 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.”
Aligning with global practice
The regulators noted that the UK’s previous bonus structure was significantly longer and more complex than those used in other major financial centres, where deferral periods typically range between three and five years. The changes follow the removal of the banker bonus cap in 2023, further aligning UK rules with international practice.
By simplifying the system, regulators aim to give firms more flexibility in how they structure pay while maintaining safeguards that link remuneration to performance and risk management. The FCA and PRA will continue to enforce existing powers to withhold or recover bonuses if misconduct or risk failings arise during the deferral period.
Market implications
Industry observers suggest the revised framework could improve liquidity for senior employees and help firms attract global talent. However, some critics caution that shorter deferral periods might weaken accountability if not supported by strong oversight and effective clawback enforcement.
The regulators emphasised that the reforms are designed to ensure pay remains aligned with responsible risk-taking while reducing administrative burden. The changes mark a significant step in the post-Brexit effort to refine the UK’s financial regulatory regime and enhance its standing as a global financial hub.
Alex Davies, CEO of Wealth Club, commented: "The changes to banker bonus rules won’t trigger Wolf of Wall Street scenes in the square mile. They’re comparatively modest for one thing. But, relaxing the rules on banker bonuses is a smart move for the UK economy nonetheless."
"Quicker payouts don’t just mean faster tax receipts for the Treasury — they also unleash spending power straight into the real economy. From property and home improvements to restaurants, holidays, and retail, these payments support jobs across a wide range of industries. Many bankers also back UK start-ups with their bonuses, helping to fund innovation, build companies, and create employment.
"The reforms make Britain more competitive on the global stage and underline that it is open for business. At the same time, with robust rules still in place, we should avoid the excesses that fuelled the last financial crisis. It’s about encouraging growth while keeping the system safe."
Jeremy Irving, partner at head of Browne Jacobson’s financial services regulatory practice, said: “In a joint policy statement by the PRA and FCA issued today, under longstanding and considerable pressure from successive governments, the regulators have started to make changes with a view to recalibrating their own risk appetite as to financial services risk-taking and remuneration. Today’s announcement addresses the once (and which might yet again be) politically sensitive issue of ‘bankers’ bonuses’."
“It seems that the new approach from the regulators is informed by practical considerations for identifying and mitigating risk. In particular, in the context of the deferral periods for senior managers’ receipt of bonuses, the regulators note: “70% of adverse outcomes of risk taking in recent years have tended to be discovered within 4 years, but less than half emerged within 3 years.” As such, the regulators’ approach appears to be ‘data-led’, although a key factor in the quality, accuracy and timeliness of such data remains firms’ (and their senior management’s) own approaches to and capabilities in reporting, investigations and notifications.
“In this regard, the regulators state they 'expect firms to freeze the vesting of all awards made to individuals undergoing internal or external investigation that could result in performance adjustment until such an investigation has concluded and the firm has made a decision and communicated it to the relevant employee.”
