The United Kingdom (U.K.) has chosen to rewrite a central part of its post-financial crisis settlement on banker pay.
With recent reforms by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), the European-style bonus cap has been removed for U.K. banks and PRA-designated investment firms. The core safeguards remain: deferrals, payment in instruments, and malus and claw back still anchor the framework, but firms now have greater discretion over the fixed-to-variable mix for senior and risk-relevant staff.
The rules that limited variable pay for Material Risk Takers (MRT) to 100 percent of fixed salary (or 200 percent with shareholder approval) no longer applies. Deferral has also been shortened and simplified. The U.K. has moved from a regime where senior managers face deferrals of up to seven or eight years, and other MRTs five years, towards a single four-year minimum deferral for MRTs, with scope for earlier, pro-rata vesting and a clearer proportionality approach. The 'gold-plated' elements that once made London an outlier are pared back.
All of this happens as banks continue to compete for senior and critical specialist talent. In that context, remuneration design is no longer just a topic for compliance teams. It has become part of how London, continental Europe and U.S.-headquartered groups position themselves in the senior talent market.
The PRA reforms do not automatically make London more attractive. They reopen four concrete opportunities for banks that want to compete more effectively for senior and critical specialist talent.
The first is the ability to reposition quantum relative to global peers. For a decade, high fixed pay, capped bonuses and long deferrals have made it difficult for U.K. banks to match U.S. competitors for senior front-office, risk and technical talent. Removing the cap allows U.K. firms to hold fixed pay closer to sustainable median levels of compensation , recreate genuine upside and downside in variable pay, and deliver more of that upside through deferred equity and similar instruments. The ambition is not to outbid Wall Street at every turn, but to narrow the gap sufficiently for London to be a credible option again.
The second opening is simplification. Workarounds to the cap have left many U.K. banks with overlapping plans and opaque conditions. The new regime gives boards license to replace a patchwork of schemes with a smaller number of clearer arrangements, where the line from results to pool to individual awards is easier to see. Design principles can now be applied consistently from the group executive team through senior managers and key specialists, so that variable pay becomes something senior leaders can understand and value rather than treat as a black box. To date, most visible changes have been at the top of the house. The real test will be whether banks extend the same clarity to senior risk, markets, treasury, technology and control roles.
The third opportunity lies in how risk oversight is organized around the Material Risk Takers (MRT) population. The reforms encourage banks to concentrate the full toolset of deferral, instruments, malus and claw back on a smaller, better justified senior group. That implies a narrower MRT list, more targeted and well-documented use of ex-post risk adjustment, and less reliance on automatic formulae in favor of structured, principle-based judgement. The intention is not to soften discipline, but to align governance with where risk is actually taken, so that the regime is more credible to supervisors and clearer to those who fall within it.
The fourth opening is narrative. The reforms allow U.K. banks to move the conversation about pay away from ratios and grids and back towards performance and value creation. Boards and Remuneration Committees can frame remuneration around the value the bank is trying to create over time, the specific contribution expected from senior roles and the way upside and downside work across the cycle for those who carry material responsibility. For senior talent choosing between London, continental Europe and the United States, this story is part of the proposition. A bank that can explain its pay philosophy in straightforward, performance-oriented terms is more likely to stand out in a market where many still speak primarily in the language of compliance.
Across continental Europe, large banks remain within the Capital Requirements Directive (CRD) and European Banking Authority (EBA) framework. Variable pay for identified staff is capped relative to fixed pay. Deferral and payment in instruments follow detailed rules, and malus and claw back expectations are set out in prescriptive guidance. Role-based allowances, once explored by some banks as a way of increasing fixed remuneration, have been narrowed by supervisors and are no longer a flexible design tool. The system has undoubtedly increased fixed costs and reduced flexibility. The evidence that it has clearly and materially reduced risk is, at best, mixed.
With the U.K. stepping away from the cap, regional pay structures now appear more starkly different. The impact for European banks is concentrated in senior and critical specialist roles, particularly in front-office markets and investment banking, in senior risk and treasury posts, and in advanced analytics, quantitative and technology profiles that can move between locations.
Within the current rules, there are essentially two strategic levers. The first is to act on quantum. Banks can raise fixed pay for key roles, and, where permitted, increase long-term award levels. This can help secure critical individuals in the short term, but it increases the permanent cost base and further entrenches a pay shape that is heavy on fixed elements and less flexible on variable differentiation.
The second lever is to engage in the regulatory debate. Over time, more firms and industry bodies are likely to argue that a regime designed in crisis conditions should be reviewed for a going-concern environment. The question is whether some elements of the CRD remuneration rules can be recalibrated, without weakening prudence, so that European banks can compete more effectively for senior and specialist talent in a global market.
Alongside this, European institutions will continue to use the levers that sit fully within their control. They can strengthen leadership and technical pipelines, invest in structured internal mobility and international rotations, and take more deliberate decisions about which senior functions must remain in euro-area entities and which can sit in London or other hubs. These measures matter, and can improve resilience at the individual firm level. They nevertheless operate inside a framework that offers less room to adjust the shape of pay than the U.K. now enjoys.
Such regulatory relaxation is seen as an explicit effort to boost competitiveness in the U.K. These rulings now heighten competition and can be seen as an opportunity for U.S. banks. Such opportunities sit squarely with an increased strategic talent leverage:
Taken together, the PRA reforms change the competitive balance across all three banking blocs.
In the U.K., banks regain room to reshape quantum, simplify incentives, focus the full risk toolset on a smaller, clearly defined senior population and tell a more persuasive story about how pay relates to performance and value creation. Whether London turns this regulatory opening into a real strategic advantage will depend on how quickly and how coherently boards and Remuneration Committees choose to act.
In continental Europe, the comparison with the U.K. brings long-standing trade-offs into sharper focus. The existing framework has delivered stability and curbed some pre-crisis excesses, but it has increased fixed costs, reduced flexibility and offers only ambiguous evidence of a safer risk environment. European banks can still protect key individuals through higher fixed pay and targeted long-term awards, and they can strengthen pipelines and mobility. Yet, without some eventual recalibration of the rules, they are likely to remain at a structural disadvantage in how far they can flex senior pay.
For U.S.-headquartered groups, the U.K. reforms are more opportunity than constraint. They make London a more natural extension of U.S. pay philosophy and strengthen the ability to attract talent from both local rivals and euro-area institutions, while allowing a more consistent global approach to senior remuneration.
The result is a more dynamic talent triangle across the Atlantic. The rules have shifted in one corner and the other two are adjusting. Over the next few years, the critical question will not be who has the thickest rulebook, but who uses this newfound flexibility to build pay systems that senior people understand, believe and are willing to sign their careers too. In that sense, the PRA shake-up has done more than remove a cap.
Beyond the regulatory debate, there is also a very practical question for each institution: how to move from principle to design. This is where WTW can help. Drawing on our work with leading banks across the U.K., continental Europe and the U.S., we can bring hard market data, scenario modelling and board-level experience to support decisions on quantum, pay mix, MRT scopes and incentive architecture. WTW is prepared to discuss these approaches and to determine the best solution options to balance both regulatory expectations and competitive realities.
Let WTW help your Remuneration Committees and HR teams build a coherent narrative that links pay, performance and risk across all three regimes, so that senior people hear one clear story rather than three different ones. In a world where the rules are diverging, having a single, globally informed view on what 'good' looks like is becoming a competitive asset in itself. It's up to you to decide whether you want to play for a draw or for a win.
WTW can help you win the contest for talent.
