For the first time since the financial crisis remade City pay, the most senior bankers in Britain can begin drawing down their bonuses from the year they are awarded, rather than waiting the better part of a decade. The 2026 performance year, now under way at every UK bank running a calendar cycle, is the first to fall wholly under a relaxed remuneration regime that cuts the top deferral period from seven years to four, scraps the old cash-versus-shares formula, and strips a large slice of duplicated rules out of the Financial Conduct Authority’s Handbook.
The changes come from a joint policy statement the Prudential Regulation Authority and the FCA published on 15 October 2025, PS21/25 and PS25/15 respectively. The rules took effect the following day and apply to performance years starting after 16 October 2025. For banks whose performance year tracks the calendar, that means mandatory application from 1 January 2026, making the current cycle the first genuine test of how the reformed regime works in practice.
What actually changed
The headline number is the deferral clock. Under the previous framework, the most senior material risk takers, a category that captures senior managers and other staff whose decisions can move a bank’s risk profile, faced deferral of up to seven years, and in effect closer to eight once a six-to-twelve-month retention period on vested shares was added. The regulators have replaced that with a uniform maximum of four years for all material risk takers, bringing the UK into line with the United States and well inside the norms of most other major centres.
Just as significant is when vesting can begin. The old rules barred the most senior bankers from receiving any part of a deferred award until at least three years had passed. Under the new regime, those awards may vest pro rata from the point they are granted, so a portion can be released in year one and the rest across the following years. The regulators pair that flexibility with continued expectations that firms hold pay back long enough to let risks crystallise.
The reform also removes the requirement that deferred bonuses be split equally between cash and share-based instruments. Firms may now pay more upfront in cash, provided the deferred portion carries a correspondingly higher weighting of instruments, giving remuneration committees more room to structure awards around a bank’s own risk profile rather than a fixed template.
Alongside the substance sits a simplification exercise. The FCA has rewritten its remuneration rules to cross-refer to the PRA Rulebook rather than restate the same requirements, cutting duplication in its own provisions by more than 70 per cent. The regulators frame the whole package as removing overlap and prescription rather than loosening the underlying discipline: malus and clawback, the Senior Managers and Certification Regime, and the role of remuneration committees all remain in place.
Why now
The direction of travel is deliberate. Since Britain scrapped the EU bonus cap in October 2023, ministers and regulators have treated City pay rules as a lever for competitiveness, part of the broader Edinburgh and Leeds reform agenda aimed at making London a more attractive home for senior banking talent. A four-year deferral aligned with the US, and vesting that starts sooner, are pitched as ways to compete for people without abandoning the post-crisis principle that pay should track long-run performance and risk.
The counter-argument is familiar and will be tested this cycle. Deferral and instrument rules exist so that bankers share in the downside when bets sour years later, not just the upside when they pay off. Shortening the horizon and letting more cash out early narrows the window in which malus can bite. The regulators’ answer is that the accountability architecture built after 2008 is doing that work, and that the deferral period was longer than it needed to be to achieve it.
The next leg: solo-regulated firms
The banker reform is not the end of the deregulatory push. On 14 July 2026 the FCA opened a further consultation, CP26/27, this time aimed at solo-regulated firms rather than the dual-regulated banks. It proposes consolidating the three existing sectoral codes covering alternative investment fund managers, UCITS management companies and MIFIDPRU investment firms into a single, principles-based code, SYSC 19AA, and substantially cutting the prescriptive rules governing variable pay in favour of governance, board accountability and supervisory judgement.
That consultation closes on 16 September 2026, with final rules expected in the first quarter of 2027. It signals that the pay simplification now landing at the banks is set to reach asset managers and investment firms next, extending a lighter-touch remuneration philosophy across a much wider slice of the financial sector.
What to watch
The real evidence will come as remuneration committees finalise awards for the 2026 year, most of which will be paid in early 2027, and as the first firms choose how far to use the new flexibility. Some banks moved early, applying certain changes voluntarily to 2025 awards. The questions now are how aggressively boards compress deferral toward the four-year floor, how much they shift back into upfront cash, and whether investors and proxy advisers push back on structures that release pay sooner. For a regime rebuilt over fifteen years to slow bankers down, the first bonus round under the relaxed rules is where the theory meets the payslip.
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