Bankers will be able to spend their bonuses sooner under a proposed shake-up of remuneration rules established in the wake of the 2008 global financial crisis.
It follows Rachel Reeves’ Mansion House speech earlier this month, which saw the Chancellor instruct regulators to do more to support growth in the believe that post-crisis attempts to limit risk taking had gone too far.
The Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority on Tuesday proposed that most senior bankers should have their bonuses deferred by five years, rather than as long as eight.
Less senior bankers would have a four-year deferral period, while part payment of bonuses would be allowed from the first year rather than the third.
Long deferral periods for bankers’ bonuses were designed after the financial crisis to enable remuneration to be clawed back by regulators in case of misconduct or bad decisions that only came to light years later.
The regulators’ proposals are subject to a consultation which will run until 13 March.
Consultation: Sam Woods is deputy governor of prudential regulation and chief executive of the PRA
Sam Woods, deputy governor of prudential regulation and chief executive of the PRA, 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.’
The BoE and FCA said they now believed the existing deferral periods were longer than needed and out of line with other jurisdictions.
The removal of the ban on the payment of dividends and interest means firms will no longer discount the value of instruments upon awarding them, according to the regulators, enabling them to reduce their compliance costs.
Tight rules on bonuses had also encouraged banks to increase basic pay for senior bankers, which was harder to cut than bonuses when banks made heavy losses, the BoE said.
Sarah Pritchard, executive director for consumers, competition and international at the FCA, added: ‘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.’
FCA branded ‘incompetent’
This week, a group of MPs and peers claimed the FCA was ‘incompetent at best, dishonest at worst’.
In a report, the FCA was found to have suffered from ‘very significant shortcomings’ in its ability to tackle fraud and other issues while its leadership remains ‘opaque and unaccountable’.
Going for growth? Earlier this month Rachel Reeves instructed the BoE and FCA to do more to support growth
An almost three-year-long investigation into the regulator, which gathered evidence from 175 whistleblowers, fraud victims and former FCA staff, revealed a culture in which ‘dishonesty and deceit’ was commonplace.
The FCA is ‘widely seen as incompetent’, the report said.
The All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services, which authored the report, is comprised of around 30 MPs and a dozen peers from the House of Lords.
The report concluded that the picture painted of the FCA ‘was not pretty’ and that its investigation had uncovered ‘tragic tales of regulatory failure causing enormous financial and emotional distress’.
An FCA spokesman said: ‘We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation.
‘We have learned from historic issues and transformed as an organisation.’
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