In an effort to give the financial sector a boost, regulators in the U.K. are planning to ease curbs on bankers’ bonuses that were adopted in the wake of the global financial crisis.
The U.K.’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) launched a joint consultation Tuesday on proposals that set out plans to reduce restrictions on the bonuses of senior bankers.
Regulators introduced constraints on bonuses after the financial crisis exposed distorted compensation incentives in the industry, and the crisis necessitated taxpayer bailouts. Now, they are looking to ease those limitations.
Among other things, they are proposing to lower the required deferral periods for bankers’ bonuses, and to allow the immediate payment of part of bankers’ bonuses, rather than imposing the current three-year delay.
They are also eliminating the waiting period for bankers selling deferred share awards, reducing the number of bankers that are subject to the rules on pay, and aiming to simplify the guidance in this area.
“The proposals simultaneously 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 regulators said.
Last year, the regulators scrapped a cap on bonuses. Since then, certain banks have boosted their bonus ratios, which have increased “the attractiveness and sensitivity of pay packages to risk outcomes,” they noted.
“These proposals on bankers’ bonuses will support U.K. 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,” said Sam Woods, deputy governor of prudential regulation and CEO of the PRA, in a release.
“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 U.K. banking sector,” added Sarah Pritchard, executive director for consumers, competition and international at the FCA.
The proposed changes are out for consultation until March 13, 2025.