Rule change planned so bankers can take bonuses earlier

A loosening of the bonus rules for bankers should not fuel a revival of the “very dangerous” pay practices prevalent in the City before the 2008 financial crisis, one of Britain’s top regulators has said.
The Bank of England’s Prudential Regulation Authority and the Financial Conduct Authority detailed their plans on Tuesday for a revamp of regulations to cut the amount of time that top bankers will have to wait to receive bonuses.
It is the second overhaul of remuneration rules in little more than a year, after a cap the UK had inherited from the European Union that limited bonuses for senior traders and financiers to twice their fixed pay was also scrapped.
The aim is to bolster the international competitiveness of Britain’s financial services sector. It is part of a broader push to relax regulations, with Rachel Reeves, the chancellor, saying this month that post-crisis rules on the City had “gone too far”.
However, by loosening pay rules the watchdogs risk criticism they are planting the seeds of a future crisis.
Sam Woods, head of the PRA, said the latest shake-up would not undermine 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.”
Woods sketched out some of the planned changes last month, when he proposed a reduction to the amount of time bonuses awarded to the best-paid bankers must be deferred, from eight years to five, and four years for less senior employees. Part-payment of awards, which presently for some financiers is only permitted after three years, will be allowed in the first year.
Bonuses are deferred to ensure they can be cancelled if deals, trades or other schemes overseen by bankers blow up at a later date.
In a consultation paper published on Tuesday, the regulators set out their plans in depth. They include measures to ensure that individual accountability extends beyond employees directly responsible for a problem, by proposing a rule that banks must also consider cutting the pay of individuals higher up the management chain.