The financial landscape in the UK is about to change dramatically. Meanwhile the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are banks laying the groundwork for new rules allowing senior bankers to pocket their bonuses much sooner. Starting this Thursday, just in time for pre-January bonus season planning, we’re rolling out some great new features! These revisions will shorten the bonus deferral period from eight years to a mere four years, starting partial payments in the first, rather than third, year.
Sam Woods, chief executive of the PRA, explained that the new regulations aim to streamline the bonus process while maintaining safeguards against reckless pay structures. He emphasized that these changes would eliminate wasteful red tape. At the same time, they would be ensuring the high standards necessary to avoid the cycle of reckless risk-taking which led to the 2008 financial crisis.
“These new rules will cut red tape without encouraging the reckless pay structures that contributed to the 2008 financial crisis.” – Sam Woods, chief executive of the PRA
This new framework brings UK practices more in line with many other global financial centers. Most significantly, it puts the UK on par with New York, where deferrals do not apply to bankers’ bonuses. Regulators are taking this step to help the UK become and remain more competitive in the global financial services marketplace. In fact, it’s an integral element of their overall strategy. In recent months, many financial firms have reported increased profits due to market volatility, leading to heightened scrutiny regarding bonus structures.
Chancellor Rachel Reeves recently hosted all nine regulators at 11 Downing Street. She challenged them to look for opportunities to reduce needless red tape and foster a more pro-business culture across the UK. The decision to change the bonus regulations follows on the heels of the EU’s decision to remove its cap on banker bonuses. Now bankers can get bonuses four times as high as their base salary!
Even with the hastened bonus process in place, regulators have promised that the new regulations will continue to discourage dangerous risk-taking behavior. This commitment was reiterated by Sarah Pritchard, the deputy chief executive at the FCA. As she said, senior management will continue to be held responsible for the decisions they make, particularly when those decisions injure consumers and markets.
“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.” – Sarah Pritchard, deputy chief executive at the FCA