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Senior bankers in the UK will receive their bonuses faster and fewer will have to wait several years to receive their payouts under plans set out by the Bank of England on Tuesday.
The proposals, which include allowing bankers to earn dividends on share-based bonuses while they are deferred, are a sign of regulators responding to political pressure to support risk-taking and economic growth.
However, the BoE said it also planned to make bankers’ bonuses more closely tied to their supervisory requirements and whether they avoid “risk-management failures”.
Under the proposals set out by the BoE’s Prudential Regulation Authority, which supervises UK banks, rules would be simplified and reduced so that fewer bankers have restrictions on their pay and employers have more discretion over who they apply to.
Bankers would also be able to receive some of their bonus in the first year, instead of having to wait three years, under the plans, which the PRA made jointly with its sister body, the Financial Conduct Authority.
The regulators said the overall bonus deferral period would be shortened from seven to five years for the most senior executives and to four years for some others. Executives would also no longer have to wait an extra year to sell shares or other instruments they receive in deferred bonuses.
The proposals would “support UK growth and competitiveness without undermining financial stability”, said PRA chief executive Sam Woods, who first outlined some of the changes last month.
He added that the changes — which are out to consultation until March 13 next year — would cut bureaucracy and support “responsible risk-taking” without returning to the “very dangerous pay structures” that were common before the 2008 financial crisis.
The FCA also plans to remove some pay rules from its handbook that duplicate those of the PRA, which the regulators said would “help firms as they will largely only need to refer to one set of remuneration rules”.
The announcement came weeks after chancellor Rachel Reeves told the annual Mansion House dinner that rules drawn up after the 2008 banking crash had “gone too far” and were stifling growth and risk-taking.
The UK introduced rules requiring banks to defer bonuses for senior executives for several years in response to outrage that many of those blamed for the financial crisis walked away with big payouts earned in the years before the crash.
But Woods said last month that the UK had become “something of an outlier” in requiring top bankers to defer part of their bonuses for up to eight years. The EU requires bankers to defer part of their bonuses for up to five years, while the US has no such requirements.
The UK has already scrapped a cap on bankers’ bonuses that was part of EU law.
The changes are part of a wider review by the PRA to streamline and adjust its rule book. It has said this will include proposals to scale back the regime to hold senior bankers more accountable for wrongdoing and assess if they are suitable for their roles.
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