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Senior UK bankers will receive their bonuses faster and will less have to wait several years for their payouts under plans set out by the Bank of England on Tuesday.
The proposals, which include allowing bankers to earn dividends on equity-based bonuses while they are deferred, are a sign that regulators are responding to political pressure to support risk-taking and economic growth.
However, the Bank of England He said he also planned to make bankers’ bonuses more closely linked to their supervisory requirements and whether they avoided “risk management failures.”
Under proposals set out by the Bank of England’s Prudential Regulation Authority, which oversees UK banks, the rules would be simplified and narrowed so that fewer bankers would have restrictions on their salaries and employers would have more discretion over who they apply them to.
Bankers could also receive part of their bonus in the first year, rather than having to wait three years, under plans the PRA drew up jointly with its sister body the Financial Conduct Authority.
Regulators said the overall bonus deferral period would be reduced from seven to five years for top executives and four years for some others. Executives also wouldn’t have to wait another year to sell shares or other instruments they received in deferred bonuses.
The PRA said an analysis of past misconduct and risk management failures at banks showed 70 per cent were discovered within four years of their occurrence.
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 from last month.
He added that the changes, which will be out for consultation 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 FCA plans to remove some pay rules that duplicate those of the PRA from its handbook, which regulators say would “help firms as they will largely only need to refer to one set of pay rules”.
The announcement came weeks after chancellor Rachel Reeves told the annual Mansion House dinner that rules put in place after the 2008 crisis had “gone too far” and were stifling growth and risk-taking.
The UK introduced a regime 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 large payouts made in the years before the crisis. collapse.
A key part of the proposals are changes to the rules governing which bankers are considered “substantial risk takers” and therefore have their bonuses deferred.
This more strictly regulated category would still apply to anyone whose work has a “material impact on a company’s risk profile,” but the only quantitative requirement would be that it applied to the top 0.3 percent of earners in the country. a bank
The Bank of England said it would also increase the variable remuneration threshold from £500,000 to £660,000, above which bankers must defer at least 60 per cent of their remuneration.
Banks often only reduce bonuses for employees directly responsible for risk management failures, the Bank of England said. In the future, he said these so-called malus or clawback provisions would apply more broadly to those responsible for overseeing areas of irregularities.
Many of the changes reflect greater post-Brexit freedom for UK regulators to depart 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 remuneration policies.
“The proposed changes will not only put the UK on a more equal footing with other global financial centres, but will also significantly reduce the burden on banks and individuals trapped by the rules,” said Andrew Patterson, partner in the UK’s incentives team. law firm. Clifford’s chance.