PRA proposes to reduce deferral periods for Higher Paid senior managers at CRR firms

At the annual Mansion House speech given on 17 October 2024, the CEO of the PRA announced a proposal to reduce current seven year deferral periods applicable to "Higher Paid" material risk takers ("MRTs") undertaking senior manager roles at banks, building societies and other CRR firms.

The current seven year deferral period (plus a further one year retention period) for Higher Paid senior managers is UK gold-plating that is not required under the equivalent European regime. The PRA will shortly bring forward proposals to apply a five year deferral period for all senior managers. MRTs who do not undertake a senior manager role would continue to be subject to a four year deferral period.

Under the current regime, Higher Paid senior managers must also wait until three years after grant for any vesting; again the PRA proposes to remove this requirement and allow for pro-rata vesting from year one, consistent with the rules for all other MRTs.

Impacted MRTs

The current seven year deferral with no vesting before the third anniversary applies to MRTs who are both:

1. Higher Paid (i.e. their annual variable remuneration exceeds 33% of their total remuneration or their total remuneration exceeds £500,000); and
2. undertaking a PRA senior management function.

Comment

The precise details of the PRA's proposals have not yet been published. Whilst the CEO's speech refers to  both the seven year deferral period and the one year retention period on instruments which currently apply to the variable remuneration paid to Higher Paid senior managers, there was no specific mention of whether retention periods will also be reduced (or removed) as part of the proposals.

The CEO's announcement was made in the context of discussing the PRA's continued work on achieving its new secondary competitiveness and growth objective. It is feasible that the detailed policy proposals will simply remove the concept of Higher Paid MRTs entirely, which would result in other UK gold-plating provisions falling away, including  the ability to apply clawback for up to ten years following award.

We will continue to keep you updated on the PRA's proposed regulatory developments. If you would like to discuss the announcement, please contact a member of the Remuneration and Incentives team.