Older bankers in Britain will be able to receive their bonuses more quickly after regulators relaxed rules introduced in the wake of the 2008 financial crisis.
From Thursday, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) will shorten the bonus deferral period for top bank managers from eight to four years, meaning partial payouts can begin in the first year rather than the current third year.
The move is part of a broader effort to make the UK financial sector more internationally competitive and bring bonus structures closer in line with those in the US and Asia, where deferrals are generally shorter – or, as in New York’s case, not required at all.
Regulators said the changes would “cut red tape” while maintaining safeguards designed to prevent the kind of reckless risk-taking that helped trigger the global financial crisis 17 years ago.
Sam Woods, chief executive of the PRA, said: “These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis. These changes are the latest example of our commitment to boosting the UK’s competitiveness.”
The reforms represent another significant easing of post-crisis pay restrictions in the UK, following last year’s decision to scrap the EU-wide cap that limited bonuses to twice a banker’s basic salary.
Under the new regime, senior managers will remain subject to strict “clawback” provisions, allowing companies and regulators to claw back bonuses if misconduct or mismanagement occurs after they are paid out.
Sarah Pritchard, deputy chief executive of the FCA, said: “The new rules also mean senior managers will continue to follow our high standards and stay on the hook where poor decisions affect consumers and markets.”
The Finance Ministry has urged regulators to review financial rules to improve the city’s global competitiveness. In July, Chancellor Rachel Reeves met senior officials from the PRA, FCA and Bank of England at 11 Downing Street to push for a “business-friendly” approach to regulation.
The timing of the rule change – ahead of bonus season in January – will be welcomed by many financial firms, which had a profitable year amid volatile markets that boosted their income from trading stocks, bonds, commodities and currencies.
While critics warn that relaxing bonus rules risks reigniting short-termism in the industry, supporters argue that the reforms are overdue and necessary to keep top talent in London amid fierce competition from global financial centers.
