The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) in the UK have jointly issued a policy statement announcing the removal of the controversial “bonus cap” for banks. This move will have significant implications for banks, building societies, and PRA-designated investment firms, including third-country branches operating under the PRA Rulebook and FCA Remuneration Code.
Effective from October 31, 2023, the changes will apply to the ongoing performance year of a firm and all future performance years. The policy statement emphasizes the regulators’ commitment to ensuring prudent risk-taking in compensation structures and highlights existing rules that will continue to apply. These rules include the requirement for all variable compensation to undergo risk adjustment and the need for a well-balanced ratio between fixed and variable components of total remuneration.
The announcement provides firms with flexibility in implementing changes to their compensation structures. This flexibility allows them to adapt and align with the evolving market landscape while maintaining a focus on risk management and long-term sustainability.