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Senior British bankers will receive their bonuses sooner, meaning fewer bankers will have to wait several years before receiving their payments, under plans set out by the Bank of England on Tuesday.
The proposals include allowing bankers to receive deferred dividends on stock-based bonuses, a sign that regulators are responding to political pressure to support risk-taking and economic growth. It is.
But the central bank also said it plans to tie bankers’ bonuses more closely to supervisory requirements and whether they avoid “risk management failures.”
Proposals from the BoE’s Prudential Regulation Authority, which oversees British banks, would simplify and narrow the rules so that fewer bankers would be subject to pay caps and employers would have more discretion over what applies. That will happen.
The scheme, drawn up by the PRA in conjunction with its sister agency the Financial Conduct Authority, also allows bankers to receive part of their bonuses in the first year rather than waiting three years.
The regulator said the overall deferral period for bonuses would be reduced from seven years to five years for top executives and four years for some others. Executives will also no longer have to wait another year to sell stocks and other instruments received as deferred bonuses.
According to the PRA, an analysis of historical fraud and risk management failures at banks found that 70% were discovered within four years of the occurrence.
PRA chief executive Sam Woods first outlined some of the changes last month, saying the proposals would “support the UK’s growth and competitiveness without compromising financial stability”. Ta.
He said the proposed changes, which are under consultation until March 13 next year, would reduce bureaucracy and avoid a return to the “very dangerous pay structures” that were common before the 2008 financial crisis. It added that it supports “responsible risk-taking.”
The FCA will remove some pay rules that overlap with the PRA from its handbook, which the regulator says will “help businesses as they will mostly only need to refer to one set of pay rules”.
The announcement comes weeks after Prime Minister Rachel Reeves told the annual Mansion House dinner that rules drawn up after the 2008 crisis had gone “too far” and were stifling growth and risk-taking. I was disappointed.
Britain will force banks to defer executive bonuses for several years in response to outrage that many of those blamed for the financial crisis took home large dividends earned in the years before the crisis. We have introduced a system that requires
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A key part of the proposal is a change to the rules governing which bankers are considered “significant risk takers” and have their bonuses deferred.
This more tightly regulated category still applies to those whose work has a “significant impact on the company’s risk profile,” but the only quantitative requirement is that the bank’s highest earners have a 0.3% % will be applied.
The BoE also announced it would raise the variable pay threshold from £500,000 to £660,000, above which bankers will have to defer at least 60% of their remuneration.
According to the BoE, banks often only reduce bonuses for employees directly responsible for risk management failures. In the future, he said, these so-called Mars or clawback clauses will apply more broadly to those responsible for overseeing areas of fraud.
Many of the changes reflect greater post-Brexit freedom for UK regulators to deviate from EU law. However, the central bank said it continues to expect 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 law firm’s incentives team, said: “The proposed changes will not only put the UK on a more equal footing with other global financial centres, but will also help banks and individuals caught up in the rules. It will also significantly reduce the burden on them.” Clifford Chance.
