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The UK’s top bankers will receive their bonuses faster and fewer of them will have to wait several years to receive their payments under plans set out by the Bank of England on Tuesday.
the ProposalsThe order, which includes allowing bankers to earn profits on share-based bonuses while they are deferred, is a sign of regulators responding to political pressure to support risk-taking and economic growth.
However, Bank of England It said it also plans to make bankers’ bonuses more closely linked to their supervisory requirements and whether they avoid “risk management failures”.
Under proposals put forward by the Bank of England’s Prudential Regulation Authority, which oversees UK banks, rules would be simplified and pared down so that fewer bankers would have to impose restrictions on their salaries, and employers would have greater discretion over who they apply to.
Bankers will also be able to collect some of their bonuses in the first year, rather than having to wait three years, under plans drawn up by the PRA in conjunction with its sister body, Financial Conduct Authority.
Regulators said the total bonus deferral period would be shortened from seven to five years for senior executives and to four years for others. Executives also won’t have to wait an additional year to sell stocks or other instruments they received in deferred bonuses.
The risk analysis body said an analysis of past misconduct and failures in risk management at banks showed that 70 per cent of them were discovered within four years of them occurring.
Sam Woods, chief executive of the PRA, said the proposals would “support growth and competitiveness in the UK without undermining financial stability”. Outlined for the first time Some changes last month.
He added that the changes – which are due to be consulted until March 13 next year – would reduce bureaucracy and support “responsible risk-taking” without returning to the “very dangerous pay structures” that were common before the 2008 financial crisis.
The Financial Conduct Authority (FCA) plans to remove some pay rules from its handbook that duplicate those in the HCA, which regulators said would “help firms because they will largely only need to refer to one set of pay rules”.
The announcement came weeks after Chancellor Rachel Reeves said at the Mansion House’s annual dinner that rules put in place after the 2008 crisis had “gone too far” and were stifling growth and risk.
The UK has introduced a system requiring banks to defer bonuses for senior executives for several years in response to anger over the departure of many of those blamed for the financial crisis with large payouts received in the years before the crash.
A key part of the proposals is to introduce changes to the rules governing which bankers are considered “material risk takers” and therefore whose bonuses are deferred.
This more stringently regulated category will still apply to anyone whose job has a “material impact on the company’s risk profile”, but the only quantitative requirement is that it applies to the top 0.3 per cent of earners at the bank.
The Bank of England said it would also raise the minimum variable pay from £500,000 to £660,000, above which bankers must defer at least 60 per cent of their wages.
The Bank of England said banks often only reduce the bonuses of staff directly responsible for risk management failures. In the future, she said, the so-called malus or restitution provisions will be applied more widely to those responsible for supervising areas of violations.
Many of the changes reflect greater post-Brexit freedom for UK regulators to deviate from EU laws. But the Bank of England said it still expected banks to “continue to make every effort to comply” with aspects of the EU guidelines on sound pay policies.
“The proposals will no doubt be welcomed by banks, who will benefit from a reduced regulatory burden and increased ability to attract top talent,” said Billy Bradley, a senior associate at law firm CMS in City.
