"We should not return to the very dangerous pay structures that were commonly in place before 2008, but these proposals will reduce bureaucracy and support responsible risk-taking."
- Sam Woods, deputy governor of prudential regulation and CEO of the PRA
The PRA and FCA have set out plans to reduce the restrictions on bonuses of senior bankers, which they say will bring the UK’s rules more in line with other countries.
A joint consultation proposes several changes to the current senior banker remuneration regime, including reducing the bonus deferral period for the most senior bankers to five years, down from eight for some. For other less senior bankers captured by the regime this will be reduced to four years. In addition, part-payment of bonuses will now be allowed from year one, rather than year three as at present for some bankers.
Additional details include removing EU-originated guidelines that prohibit paying dividends or interest on deferred bonuses awarded in shares or other instruments and require senior bankers to wait up to a year before being able to sell deferred bonuses in shares or other instruments.
The changes will also reduce the number of individuals subject to rules on their pay, simplifying the approach for identifying those who should be subject to them, and giving firms more discretion to determine which employees will be subject to the rules.
The regulators say they will ensure bankers are "held accountable" by "ensuring that firms consider adjusting pay in the event of risk-management failures".
In the consultation, the FCA and PRA said the changes should "help to reverse a trend whereby banks have put a higher amount of total financial reward into fixed pay, which is less reactive to shocks, rather than bonuses, which can be adjusted down if events turn out worse than expected".
The regulators added that the proposals "look to strengthen the link between the actions of senior bankers and their financial rewards, strongly encouraging firms to tie bonuses closer to not just the successes of executives, but also any risk-management failures".
The proposals also introduce greater alignment with the Senior Managers Regime, so that firms consider performance against PRA supervisory priorities in the bonus payouts of the responsible senior managers.
These changes follow on from 2023’s removal of the banker bonus cap, which was introduced across the EU in 2014 following the global financial crisis and capped bankers' bonuses at twice their annual salary.
Speaking during the 2022 mini-Budget, then-chancellor Kwasi Kwarteng said: "All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe. It never capped total remuneration, so let’s not sit here and pretend otherwise."
Sam Woods, deputy governor of prudential regulation and CEO of the PRA said: “These proposals on bankers’ bonuses will support UK growth and competitiveness without undermining financial stability. We should not return to the very dangerous pay structures that were commonly in place before 2008, but these proposals will reduce bureaucracy and support responsible risk-taking.”
Sarah Pritchard, executive director for consumers, competition and international at the FCA, said: “These important changes will remove unnecessary duplication of rules between the regulators, streamline the remuneration regime for firms, and further strengthen the reputation and competitiveness of the UK banking sector.”
