Senior bankers will be able to cash in bonuses much faster under new rules designed to make the UK more competitive for financial talent. The bonus deferral period has been slashed from eight years to four years, going further than regulators originally proposed.
Most senior bankers will also receive part-payments of bonuses from the first year they are awarded, rather than waiting until the third year. The changes affect 2025 pay awards and those not yet fully paid.
Rules take effect this month
The new regulations come into force on 16th October, implemented by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). Previous proposals had suggested reducing the deferral period to five years for top bankers and four years for less senior staff.
The changes represent a significant shift from the original plans set out last year. Deferrals happen when bonuses are paid out in future rather than immediately, meaning they can be cancelled if business performance changes.
Boosting UK competitiveness
"These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis," said Sam Woods, the PRA's chief executive. "These changes are the latest example of our commitment to boosting UK competitiveness."
Sarah Pritchard, deputy chief executive of 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 regulators believe banking firms will still have enough time to spot poor decisions before bonuses are paid.
Brexit enables rule relaxation
The changes are expected to help bring down base salaries, which are often pushed higher to compensate for bonus restrictions. Regulators have been relaxing City rules since Brexit freed the UK from following EU guidelines.
Shortening the deferral period makes the UK more attractive because bankers currently wait longer for bonuses than in some other countries. The regulators maintain that banks retain sufficient time to reduce bonuses if staff performance deteriorates.
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
