UK Regulators Consult on Compensation Reform

The U.K. Prudential Regulation Authority and Financial Conduct Authority have published a joint consultation on compensation reform. The consultation paper sets out proposed amendments to the remuneration part of the PRA Rulebook, Supervisory Statement SS2/17 and the FCA's associated non-Handbook Guidance relating to compensation for dual-regulated firms. The proposals complement previous compensation regime changes enhancing proportionality for small firms, and removing the bonus cap.

The PRA and FCA explain that the proposed policy amendments maintain the compensation regime's overall structure and objectives while simplifying the regime and tailoring it more to the U.K. market, by:

• reducing the number of individuals subject to the remuneration rules (known as Material Risk Takers);
• simplifying the approach for identifying MRTs, placing more emphasis on firms to own and safeguard the process;
• bringing rules on deferral of variable compensation more in line with international practice;
• ensuring that variable compensation better reflects risk taking outcomes and individual responsibilities; and
• aligning the regulators' rules on buyouts in relation to small firms.

Additionally, the FCA is proposing to change the structure of its rules in SYSC 19D (and related guidance) by cross-referring to the 'Remuneration Part' of the PRA. This change should avoid any unnecessary duplication and ensure greater consistency and alignment of the regulators' rules. The main effect of this proposed change is that, in the future, the detailed Remuneration Rules would mostly be contained in the Remuneration Part of the PRA rulebook. The deadline for comments is March 13, 2025.