The PRA and FCA have finalised their new remuneration rules. In broad terms there are no significant departures from the initial consultation proposals last year, although there are some material changes in the detail, for example in relation to deferral.

Regulatory framework

The number of Remuneration Codes has grown. Which Code(s) are relevant will depend on a firm’s particular situation. PRA regulation is in the Remuneration Part of the PRA Rulebook. The FCA now has four Remuneration Codes (SYSC 19A to 19D). SYSC 19D is a new Code that applies to dual-regulated firms. No changes are made in respect of FCA-regulated firms governed by SYSC19B (AIFMs) and SYSC19C (BIPRU).


Deferral periods are to be extended to:

  • 7 years for Senior Managers (PRA and FCA). There is no vesting prior to the third anniversary of award, and vesting must be no faster than on a pro rata basis.
  • 5 years for PRA designated risk managers (vesting no faster than pro rata from year one), and
  • 3-5 years for all other PRA Material Risk Takers (MRTs), and for all FCA non-Senior Manager MRTs (vesting no faster than pro rata from year one).

The new deferral requirements apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016.


The FCA is mirroring the PRA’s existing 7 year clawback rule for variable remuneration awarded to all MRTs. In addition, both the PRA and FCA are implementing an additional requirement extending clawback by up to a further 3 years (i.e. 10 years in total) for PRA-designated Senior Managers where there are outstanding internal or regulatory investigations at the end of the normal seven-year clawback period.

The new clawback requirements apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016.


The regulators continue to be concerned about the inability to apply malus to compensation paid by a firm to a new employee for unvested remuneration that is cancelled when the employee leaves their previous firm. The regulators will consult further on whether to require buyout awards to be held in a form that permits them to be subject to malus by the previous employer, for example, by having some form of escrow account. The consultation response does not discuss the original suggestion that the regulators themselves be given discretionary powers to apply malus in this situation, although we will have to see what the forthcoming consultation says for more detail on this. In the meantime, the regulators will seek to ensure that clawback arrangements are a robust alternative to use in this situation.

Risk adjustment (PRA only)

The final rules enhance existing guidance on calculating profit for the purposes of awarding remuneration based on prudent valuation principles, in particular on working out the Prudent Valuation Adjustment (PVA) to be applied to the profit figure used for determining bonus pool sizes. This applies to UK firms and UK subsidiaries of overseas firms. For UK subsidiaries of international firms where there is a global bonus pool rather than a separate UK bonus pool, the PVA adjustment must be applied to the profits of the UK entity that feed into the global bonus pool. Branches of overseas firms are not covered by this new requirement, although the PRA expects those firms to apply an appropriate adjustment based on comparable principles to the extent it is achievable.

Bailed-out banks

It is being made explicit that no variable pay (including discretionary payments such as loss of office and discretionary pension payments) should be paid to the management of a firm which is in receipt of taxpayer support, unless justified.

NED remuneration

New rules prohibit variable pay for NEDs, to encourage their independence.

When is this coming into force?

The new rules on deferral and clawback apply to variable remuneration awarded for performance periods beginning on or after 1 January 2016. All other requirements apply from 1 July 2015.

Uncertainties remain

Despite having finalised versions of the new rules, a number of uncertainties remain, for example in relation to the EBA’s views on role-based allowances and the application of the proportionality principle. We can therefore expect to see further developments in this area.