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Bankers in the UK will receive their next bonuses faster under reforms announced by the Bank of England on Wednesday, as authorities move to loosen more of the rules imposed on pay after the 2008 financial crisis.
In a step that goes further than an initial proposal last year, the BoE’s Prudential Regulation Authority said it would cut the time senior bankers have to wait before receiving their full bonuses from eight years to four years. The PRA had proposed a deferral period of up to five years.
The changes, which come into force on Thursday and bring the UK in line with other jurisdictions such as the US, will apply to the next round of bonuses awarded in the City of London early next year. They also reduce the number of UK bankers who will have their bonuses deferred.
The changes mark a significant easing of rules UK regulators introduced after the 2008 financial crisis, in response to public anger that many of those blamed for the crash walked away with big payouts.
The overhaul also reflects greater post-Brexit freedom for UK regulators to diverge from EU laws, and follow the 2023 decision by the UK to scrap the cap on bonuses imposed by Brussels.
“These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis,” said Sam Woods, head of the PRA. “These changes are the latest example of our commitment to boosting UK competitiveness.”
The regulator said it had also shortened the bonus deferral period more than it initially proposed last year after feedback from the industry.
Under the changes, bankers will be able to receive part of their bonuses within a year rather than having to wait three years. They will also be allowed to earn dividends on share-based bonuses while they are deferred.
The Financial Conduct Authority, which jointly regulates banks with the PRA, is also removing about 70 per cent of its pay rules from its handbook to avoid duplication.
The changes set out on Wednesday also aim to reverse a trend for banks to increase the fixed pay of senior executives and reduce the proportion they receive as performance-based bonuses.
“This matters, as bonuses can be more rapidly reduced if individuals are found to have been at fault for poor decisions, or if the firm’s financial performance worsens,” they said.
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