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Senior bankers in the UK will receive their bonuses faster and fewer will have to wait years to receive their payments under plans set out by the Bank of England on Tuesday.
The proposals, which include allowing bankers to earn dividends on share-based bonuses when they are deferred, are a sign of regulators responding to political pressure to take risk and support economic growth.
However, the boi said it planned to link bankers’ bonuses more closely to their supervisory requirements and whether they avoid “risk-management failures”.
Under proposals set out by the BoE’s Prudential Regulation Authority, which oversees UK banks, rules will be simplified and reduced so that fewer bankers have restrictions on their pay and employers have more discretion over whether they Who apply
Bankers will also be able to get part of their bonus in the first year, instead of waiting three years, under the plans, which the PRA jointly created with its affiliate. Financial Conduct Authority.
Regulators said the overall bonus deferral period would be reduced from seven to five years for the most senior executives and four years for some others. Executives also no longer have to wait an extra year to sell shares or other instruments received in deferred bonuses.
The PRA said an analysis of past misconduct and risk-management failures at banks showed that 70 percent were discovered within four years of their occurrence.
PRA chief executive Sam Woods said the proposals would “support UK growth and competitiveness without undermining financial stability”. First outline Some changes last month.
He added that the changes – which are out for consultation until March 13 next year – would cut bureaucracy and support “responsible risk-taking” without returning to the “very dangerous pay structure” that was common before the 2008 financial crisis. were
The FCA plans to remove some of the remuneration rules from its handbook that mimic the PRA, which regulators said would “help firms as they largely have to refer to only one set of remuneration rules”. will be required”.
The announcement came just weeks after Chancellor Rachel Reeves told the annual Mansion House dinner that regulations put in place after the 2008 crisis had “gone too far” and were stifling growth and risk-taking.
The UK introduced a regime requiring banks to defer bonuses for senior executives for several years in response to anger that many of those responsible for the financial crisis walked away with huge payouts earned in the years before the crash. were
A key part of the proposals are changes to rules that regulate bankers who are considered “material risk takers” and therefore defer their bonuses.
This more tightly regulated category would still apply to anyone whose job has a “material impact on the firm’s risk profile,” but only the quantitative requirement would apply to the bank’s top 0.3 percent of earners. will be
The BoE said it would raise the threshold for variable pay from £500,000 to £660,000, above which bankers must defer at least 60 per cent of their remuneration.
Banks often cut the bonuses of employees directly responsible for risk-management failures, the BoE said. In future it said these so-called malus or clawback provisions would apply more widely to those responsible for overseeing areas of wrongdoing.
Many of the changes reflect greater post-Brexit freedom for UK regulators to diverge from EU laws. But the BoE said it still expects banks to continue to make every effort to comply with aspects of the EU guidelines on sound remuneration policies.
Andrew Patterson, a partner in the incentives team at the law firm, said: “The proposed changes would not only put the UK on a different footing with other global financial centres, but also significantly reduce the burden on banks and individuals caught by the rules. decreases with Clifford Chance.
