Financial Services: bonus season update

As year-end approaches, pay and bonus decisions are firmly in the spotlight and businesses will be balancing financial results with talent reward and retention. This year, there are some new issues to factor in.

We’ll take you through:

• PRA changes to the Material Risk Taker (MRT) pay requirements for UK banks, building societies, and PRA-designated investment firms 
• fresh guidance on NED remuneration structures 
• news from the FCA about guidance on Non-Financial Misconduct
• the latest developments on pay reporting.

Material Risk Taker (MRT) pay in dual regulated firms

These changes came into force on 16 October 2025, in time for 2025 pay awards and any other awards made but not yet fully paid: 

Deferral

The minimum deferral period is being reduced to 4 years for all MRTs including higher paid MRTs and Senior Management Functions (SMFs). This replaces the previous 7-year deferral for SMFs, and 5 years for other MRTs.

The changes also simply the deferral regime by removing the distinction between higher paid MRTs and other MRTs. All MRTs are now treated under a single regime. 

Pro-rata Vesting and Early Part-Payment 

Firms are now permitted to make variable pay awards to MRTs that can start pro-rata vesting immediately from the award date, rather than having to wait for three years. 

In addition, the mandatory 50:50 split between cash and shares/instruments has been dropped. This year, firms will be able to pay a greater proportion of cash up front, provided the deferred portion includes a higher proportion of instruments (shares or equivalent).  

These changes allow significantly more flexibility.

Deferral Proportions

Although the distinction between higher paid MRTs and other MRTs has been removed for the length of time of pay deferral (see above), it remains relevant to the proportion of pay that must be deferred.  

The total remuneration threshold at which someone will be a higher paid MRT has been increased: from earnings exceeding £500,000, to over £660,000. The requirement that annual variable remuneration should not exceed 33% of total remuneration remains unchanged.

For MRTs, the deferral proportion remains 40%. For higher paid MRTs, the deferral proportion remains 60%. 

The full paper is here.

Remember, other businesses, such as some major insurers, who are not dual regulated, are not impacted by these changes remain bound by FCA SYSC 19. However, the FCA is also reviewing the effectiveness of its solo remuneration rules and has said it plans to update these next year, following industry and stakeholder engagement.

Financial Reporting Council Guidance on Non-Executive Director Pay

The Financial Reporting Council has clarified that boards may pay non-executive directors a portion of their fees in shares, provided transparency is maintained in line with the UK Corporate Governance Code.

This will give firms greater freedom on NED pay structures.

FCA Response to ‘Sexism in the City’ Inquiry and Non-Financial Misconduct

The FCA response to the ‘Sexism in the City’ enquiry has been published.  It confirms that the FCA will decide by the end of 2025 whether to issue additional guidance on non-financial misconduct (NFM).  The FCA response highlights that it is yet to reach a clear decision. It notes that guidance may be helpful, but would be indicative, not prescriptive, and could increase compliance costs.

Read more about the FCA’s plans on NFM here. 

NFM is going to remain a key topic for financial services.  The FCA response also highlights that 76 supervisory cases related to NFM are currently open and that the total number of supervisory cases concerning NFM per year since 2022 show an upward trend.  Note that 15 of the 76 active investigations were in the insurance sector.

Pay reporting reform

Large employers (250+ employees) already publish annual Gender Pay Gap data. Currently, gender equality action plans are optional, but the Employment Rights Bill will make them mandatory. It will also require employers to publish details of how they support employees affected by the menopause: with voluntary menopause action plans from April 2026, which will be compulsory by 2027. 

Looking ahead, disability and ethnicity pay gap reporting is expected, so start gathering data and addressing imbalances now.

In brief

2026 looks like it will be a significant year in terms of employment and regulatory changes. Make sure you keep good records of pay decisions so you can evidence compliance.  We’ll be keeping you up to date as the changes roll out.