Senior bankers in the UK will be able to collect their bonuses more quickly after regulators moved to relax rules introduced in the wake of the 2008 financial crisis.
From Thursday, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) will reduce the bonus deferral period for top banking executives from eight years to four, allowing partial payouts to begin in the first year rather than year three as previously required.
The move is part of a broader effort to make the UK financial sector more competitive internationally, bringing bonus structures closer in line with those in the US and Asia, where deferrals are generally shorter — or, in the case of New York, not required at all.
The regulators said the changes would “cut red tape” while maintaining safeguards designed to prevent the kind of reckless risk-taking that helped trigger the global financial crisis 17 years ago.
Sam Woods, Chief Executive 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 reforms mark another significant loosening of the UK’s post-crisis pay restrictions following last year’s decision to scrap the EU-wide cap that limited bonuses to twice a banker’s base salary.
Under the new regime, senior managers will still be subject to stringent “clawback” provisions, allowing firms and regulators to recover bonuses if misconduct or mismanagement emerges after payout.
Sarah Pritchard, Deputy Chief Executive at the FCA, said: “The new rules also mean senior managers will continue to follow our high standards and remain on the hook where poor decisions affect consumers and markets.”
The Treasury has been pressing regulators to review financial rules as part of a broader push to enhance the City’s global competitiveness. In July, Chancellor Rachel Reeves met senior figures from the PRA, FCA and Bank of England at 11 Downing Street to urge a “business-friendly” approach to regulation.
The timing of the rule change — ahead of the January bonus season — will be welcomed by many financial firms, which have enjoyed a profitable year amid volatile markets that have boosted earnings from trading equities, bonds, commodities and currencies.
While critics warn that easing bonus rules risks reigniting short-termism in the sector, supporters argue the reforms are overdue and necessary to retain top talent in London amid stiff competition from global financial hubs.
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Bankers to receive bonuses faster under post-crisis rule change