Follow us

The PRA and the FCA (the "Regulators") have launched a consultation to remove the regulatory limit on the fixed/variable remuneration ratio (commonly referred to as the bankers' bonus cap), thereby allowing Banks and other PRA-designated investment firms to increase, if they so wish, the maximum ratio between fixed and variable remuneration for key staff.

The bonus cap currently limits the variable remuneration of material risk takers ("MRTs") to 100% of their fixed pay (or 200% with shareholder approval). If the changes are implemented as proposed by the Regulators, firms will be free to set their own ratios, which may vary for different MRTs. Whilst not explicitly stated in the consultation, we expect that firms will also be allowed to vary ratios from year to year if they consider this to be appropriate (consistent with the position for MIFIDPRU investment firms)


The consultation is open to responses until 31 March 2023. It is anticipated that the final policy will then be published in Q2 2023, and would apply to performance years starting thereafter. For those firms with a calendar year financial year, this would mean the current rules would cease to apply for the 2024 performance year (i.e. for annual bonuses payable c. Q1 2025) onwards. The current bonus cap would continue to apply for the 2022 and 2023 performance years.


The Regulators set out well-rehearsed arguments in favour of removal of the regulatory bonus cap, noting that the UK objected to its introduction when part of the EU. The main argument put forward in favour of removal of the regulatory cap is that, in practice, it has simply resulted in an increase in MRTs' fixed compensation. The Regulators have three main concerns with this:

  • it has increased fixed costs, reducing a firm's ability to adjust costs to absorb losses in a downturn;
  • it has limited the proportion of an MRT's remuneration that is performance-based, reducing alignment with stakeholders; and
  • for large firms, it has reduced the proportion of an MRT's remuneration that is mandatorily subject to the pay-out process rules (deferral, payment in instruments, retention and malus/clawback).


The Regulators have emphasised that removing the regulatory cap (and allowing each firm to set its own limits) is also intended to reduce competitive distortions between CRD entities and firms subject to the UK's other remuneration regulations, which do not set a maximum fixed/variable ratio. Removal of the maximum ratio should lead to a more level playing field between banks and other financial services firms in recruiting staff carrying out similar roles. The Regulators also consider that removing the regulatory cap will assist smaller firms, who may not have the financial resources available to grant MRTs a competitive fixed remuneration package.

Both the PRA and FCA explicitly acknowledge the new secondary objective to be introduced by the Edinburgh Reforms to facilitate international competitiveness of the UK economy. The consultation refers to the fact that removing the regulatory cap will support the UK in attracting internationally active financial institutions, who may otherwise choose to locate in jurisdictions where no cap applies (e.g. the US).

Disclosure of Pay Ratios

As part of the consultation, the Regulators have published draft revised versions of the PRA Rulebook, SYSC 19D and the CRR disclosure regulation. Unlike the disclosure provisions under the UK's other remuneration regulations, based on the amended CRR disclosure regulation, it appears that banks and other CRR firms will still be required to disclose their fixed/variable pay ratios. It is currently unclear whether a firm will only be required to publish the maximum ratio operated, or a range of ratios by category of MRT. Firms may wish to respond on this point as part of the consultation, given that it could require the disclosure of commercially sensitive information around the remuneration packages of senior personnel.


The Regulators note that the introduction of the bonus cap has already resulted in an increase in contractual fixed pay for MRTs. It is therefore generally accepted that any re-balancing of compensation packages towards variable remuneration will only occur in the medium to long-term.  It will generally not be possible for firms to immediately rebalance fixed and variable remuneration given the contractual nature of fixed remuneration, even if this was given in the form of "code allowances", although it may be possible to renegotiate arrangements with existing employees.

Existing requirements for deferral, payment in instruments, retention and malus/clawback will continue to apply to firms without any changes currently proposed. The fact that the Regulators have pointed to the existence of these requirements as part of the rationale for removal of the bonus cap, and the fact that the UK rules already "gold-plated" the CRD5 requirements, indicates that the pay-out process rules are unlikely to be altered significantly in the near future.

The consultation references the link between the remuneration requirements and the Senior Managers regime, noting that "there may be scope to improve the alignment of and interlinkages between the two regimes". The PRA will consider these issues further in due course, presumably as part of the broader review on reform of the Senior Managers regime due to take place in Q1 2023 as part of the Edinburgh Reforms.

The consultation and supporting documents are available here. The deadline for responses is 31 March 2023, and should be addressed to [email protected].

Key contacts

Paul Ellerman photo

Paul Ellerman

Partner, London

Paul Ellerman
Mark Ife photo

Mark Ife

Partner, London

Mark Ife
Kiran Khetia photo

Kiran Khetia

Of Counsel, London

Kiran Khetia