The change will come into force on 31 October and apply to banks, building societies and PRA-designated investment firms.
The regulators opened a consultation on removing bankers’ bonus cap in December, which closed in March.
It proposed removing the current limits on the ratio between fixed and variable pay on related provisions on shareholder approval and discount rates by deleting and amending certain rules in the remuneration policy.
The plan to remove the cap on bankers’ bonus was initially announced by former Chancellor Kwasi Kwarteng and was one of the few policies that was not unwound by current Chancellor Jeremy Hunt.
The cap was introduced in 2014 and limited variable pay of banks, building society and investment firms to twice their base pay.
The regulators said that they wanted to “strengthen the effectiveness” of the remuneration regime by upping the amount of compensation that could be subjected to “incentive setting tools”.
“These changes should also help remove unintended consequences of the bonus cap. In particular, the growth in the proportion of the fixed component of total remuneration, which reduces a firm’s ability to adjust variable remuneration to absorb losses or for material poor performance or misconduct that subsequently comes to light,” it added.
The regulators added that a bonus cap was “not routinely imposed in other leading international financial centres outside the EU”.
It continued that it had been identified as a factor limiting labour mobility.
The regulators said that they considered the changes to the policy would “enhance clarity and flexibility, to the benefit of firms, without adding any additional burden”.
“The impact of the regulators’ changes to the final policy is expected to be no different for mutuals than for other firms,” the regulators said.