Plans to reduce the restrictions on the bonuses of senior bankers have been revealed.
The proposals have been published by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
Several changes to the current senior banker remuneration regime have been set out in the joint consultation.
These include reducing the bonus deferral period for the most senior bankers to five years.
This is down from eight for some, as first announced by the deputy governor of Prudential Regulation and chief executive of the PRA, Sam Woods, at Mansion House last month.
For other, less senior bankers captured by the regime, this will be reduced to four years.
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The plans also allow part-payment of bonuses from year one, rather than year three as at present for some bankers.
Woods said: “These proposals on bankers’ bonuses will support UK 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.”
Banking sector competitiveness
Sarah Pritchard, executive director for consumers, competition and international at the FCA, said: “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 UK banking sector.”
Additional details include removing EU-originated guidelines that prohibit paying dividends or interest on deferred bonuses awarded in shares or other instruments.
Guidelines that require senior bankers to wait up to a year before being able to sell deferred bonuses in shares or other instruments would also be removed.
There are plans to reduce the number of individuals subject to rules on their pay, simplify the approach for identifying those who should be subject to them, and give firms more discretion to determine which employees will be subject to the rules.
The proposals also suggest bankers are held accountable for the outcomes of risk-taking decisions by introducing clarifications to existing policies. This ensures firms consider adjusting pay in the event of risk-management failures.
The consultation seeks to simplify the guidelines around banker bonuses, bringing the UK’s rules more in line with other countries.
The proposed periods for deferral of bonuses provide enough time for problems to surface.
They should also help to reverse a trend where banks have put a higher amount of total financial reward into fixed pay, which is less reactive to shocks.
This is opposed to bonuses, which can be adjusted down if events turn out worse than expected.
Financial rewards
The proposals also look to strengthen the link between the actions of senior bankers and their financial rewards.
This encourages firms to tie bonuses closer to not just the successes of executives, but also any risk-management failures.
