Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Senior bankers in the UK will be able to receive bonuses three years earlier under plans outlined by a Bank of England regulator as part of moves to adjust post-financial crisis rules in order to support economic growth.
Sam Woods, chief executive of the Prudential Regulation Authority, said on Thursday that the UK had become “something of an outlier” in requiring top bankers to defer part of their bonuses for up to eight years.
Woods, who is also a BoE deputy governor, told financial executives at the annual City Dinner that the delays to bonus payouts were “longer than they need to be to create the right incentives for safety and soundness”.
He said the overall bonus deferral period would be shortened to five years for the most senior bankers and four years for some other executives. Bankers would also be able to receive some of their bonus in the first year, instead of having to wait three years. Woods did not say when the proposed changes would take effect.
The UK introduced rules requiring banks to defer bonuses for senior executives for several years in response to outrage that many of those responsible for causing the 2008-09 financial crisis had earned big bonuses in the years leading up to the crash.
The EU requires bankers to defer part of their bonuses for up to five years, while the US has no such requirements.
“These proposals will support growth and make our regime more competitive without undermining financial stability,” Woods said in his speech.
The PRA was “looking carefully at the vast corpus of existing legislation” to look for ways to “tailor and refine” while “maintaining safety and soundness”, he said, adding that it would also “streamline” the regime to hold senior bankers more accountable for wrongdoing.
Adrian Crawford, employment partner at law firm Kingsley Napley, said the bonus deferral rules were “seen by many as political banker-bashing rather than genuine risk management”, and that the PRA’s proposals would make Britain “a more attractive location for internationally mobile, high-flying bankers”.
Woods’s comments come only days after Sir Keir Starmer vowed to “rip up” Britain’s bureaucracy and urged regulators to prioritise growth.
The UK’s main financial regulators have come under greater pressure to show they are meeting an extra objective to consider growth and competitiveness that they were given by the previous Conservative government last year.
Speaking alongside Woods at the City Dinner, the head of the Financial Conduct Authority sought to reassure critics of its plans to publicly “name and shame” more companies it investigates, saying the changes would affect “relatively few cases”.
Nikhil Rathi said he had “heard the strength of opposition” to the proposals and pledged to adjust them, including by giving companies more notice before they were named.
He conceded that “the jury is out on whether the FCA is helping to achieve growth”, adding: “We clearly have more to do.”
The regulator triggered a fierce City backlash this year when it proposed to increase transparency on its enforcement activities by introducing a “public interest test” to decide when to disclose the companies it is investigating.
At present, the FCA discloses details of its enforcement activities mid-investigation only in “exceptional circumstances”, such as to help bring forward witnesses.
But there has been pressure for the watchdog to be more transparent about its investigations.
Rathi said: “Our current approach doesn’t work. We think a degree more openness can reduce harm, build whistleblower confidence and benefit firms that play by the rules.”
The FCA would provide more data and case studies on how the proposals would work in practice next month and its board planned to take a final decision “early next year”, he added.
Trade body UK Finance said it was “good” that the watchdog was “listening and reflecting on feedback” but added that the industry would wait to see “where the FCA ultimately lands”.
