Changes to Banking Remuneration Rules to better grow the economy

November 10, 2025

Australian banking regulation on executive pay looks like it is taking the mantle of, arguably, being toughest among the G20 countries.

This stems from UK regulators’ reforms that they argue will boost UK bank competitiveness by:

  • Reducing the number of individuals subject to the remuneration rules (Material Risk Takers (MRTs));
  • Simplifying the approach for identifying MRTs, placing more emphasis on firms to own and safeguard the process;
  • Bringing rules on deferral of variable remuneration more in line with international practice; and
  • Ensuring that variable remuneration better reflects risk taking outcomes and individual responsibilities.

While ASIC has become belatedly aware of capital markets going “off grid” into the opacity of private markets, there is no sign that the Australian Prudential Regulation Authority (APRA) has become similarly concerned with systemic risk arising from financial assets moving from the cosier, safer world of its highly regulated banks to private credit, where executive pay can be any shape or size provided investors receive a better risk adjusted return.

The UK has historically had some of the world’s most demanding remuneration regulations for banks. Recent developments towards a less prescriptive regime are aimed at boosting the competitiveness and growth of the UK economy.

This does not seem to be a concern in Australia, where banks have become “safe utility-like” stocks and, it seems, less responsive to cyclical change.

The UK bank pay key changes (effective from 16th October) are as follows:

Deferral requirements:

  • Deferral period – minimum deferral period reduced to 4 years for all Material Risk Takers (MRTs) including Senior Management Functions (SMFs). Previously the requirement was up to 7 years for SMFs.
  • Deferral rates – previously deferral of 40% to 60% of bonuses required, with higher earners (above threshold of £500,000) subject to the higher rate of 60%. Now a marginal system applies with 40% of a bonus to be deferred up to £660,000 and 60% above that level.

Payment in instruments (equity or equivalent):

  • After requests for more flexibility the Prudential Regulation Authority (PRA) has decided to remove the requirement for an equal split between cash and instruments in both the upfront and deferred portions.
  • Fifty percent of total variable remuneration must still be paid in instruments but this gives firms more flexibility on the form of upfront and deferred remuneration. For example, a company could choose to pay more cash upfront than it does deferred, as long as it the overall proportion of cash to instruments is 50%:50%.

Retention periods:

  • Post-vesting retention periods have been removed for deferred instruments. There is no change to the 12 month retention period for upfront instruments.

Dividend equivalents:

  • Firms are now able to pay interest or dividend payments on deferred remuneration (previously prohibited).

MRT identification:

  • A new single quantitative MRT identification threshold of 0.3% of a firm’s highest earners, with deletion of all other quantitative criteria. Qualitative criteria is unchanged.
  • A prior exemption from some rules for MRTs who had served for less than 3 months was also reintroduced.

Individual Proportionality limit:

  • Previously firms could disregard select remuneration rules below a threshold of variable pay of £44,000. This has increased to £660,000 total pay.
  • For this to apply, variable pay must be no more than 33% of total pay (requirement unchanged).

Rule duplication

  • The Financial Conduct Authority (FCA) will now cross refer to PRA requirements in its rules, which will simplify regulations.

See the PRA and FCA joint policy statement confirming (with some changes) the reforms originally proposed in a consultation paper in November 2024 HERE.

See the original consultation paper HERE.

See APRA’s handbook HERE.