Bankers will be able to collect their bonuses much sooner under a relaxation of remuneration rules unveiled by the UK’s prudential regulator.
The new rules will allow part-payment of bonuses for the most senior bankers from year one, rather than year three under previous rules.
The amount of time that senior bankers must now wait before receiving their full bonus, known as a deferral period – will be cut from eight to four years.
The proposals bring the UK more closely in line with many other major jurisdictions, according to the Prudential Regulatory Authority (PRA).
The new rules will come into force as soon as tomorrow, in time for 2025 pay awards and any other awards made but not yet fully paid.
The changes are the latest sign of regulators vowing to slash compliance costs for businesses after Rachel Reeves urged watchdogs to take a more pro-growth approach.
‘Cut unneeded complexity’
Sam Woods, Deputy Governor of Prudential Regulation and CEO 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 UK competitiveness.”
The proposals follow a consultation over simplifying banker remuneration conducted by the PRA.
The changes will also include the lifting of restrictions on the proportion of bonuses that need to be deferred, going further than measures considered by the consultation, as well as new rules to give firms more flexibility to allow a greater share of the cash element of bonuses to be received up front.
The PRA said the reforms strengthen the link between the actions of senior bankers and their financial rewards, strongly encouraging firms to tie bonuses closer to the successes of executives as well as any risk-management failures.
Sarah Pritchard, Deputy chief executive at the FCA, said: “Streamlining our remuneration rules by 70 per cent will cut unneeded complexity and make them simpler to follow.”
The changes follow a decision by then-chancellor Kwasi Kwarteng to scrap the bonus cap, an EU rule that restricted the size of banker bonus awards as a proportion of their fixed pay.
The decision was one of the few to have survived Kwarteng’s dramatic 2022 mini-budget, after a number of other measures were overturned by his successor, Jeremy Hunt.
The move is thought to have contributed to a jump in the size of awards of variable pay in the UK’s financial services sector.