Zarah ChoudharySenior bankers may soon see shorter bonus deferral periods – reduced from eight to five years – while bonuses could be partially paid from year one instead of year three.
These changes are part of a joint consultation published today by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), aiming to streamline the banker remuneration regime while strengthening accountability and supporting UK growth and competitiveness.
The consultation proposes reducing the bonus deferral period for the most senior bankers to five years, down from eight for some, while for less senior bankers, the deferral period would decrease to four years.
Additionally, the proposal would allow part-payment of bonuses from year one instead of the current requirement to wait until year three for some bankers.
The consultation also suggested removing several EU-originated guidelines, including restrictions on paying dividends or interest on deferred bonuses awarded in shares or other instruments, and requirements for senior bankers to wait up to a year before selling deferred bonuses.
The changes aim to reduce the number of individuals subject to pay rules, simplify how firms identify employees subject to the regime, and provide firms more discretion in applying these rules.
It also looks to strengthen accountability for risk-taking by encouraging firms to adjust pay for risk-management failures.
The proposals would align bonus payouts with performance against the PRA’s supervisory priorities under the Senior Managers Regime.
Sam Woods, Deputy Governor of Prudential Regulation and CEO of the PRA, said: “These proposals on bankers’ bonuses will support UK growth and competitiveness without undermining 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.”
Sarah Pritchard, Executive Director for Consumers, Competition, and International at the FCA, added: “These important changes will remove unnecessary duplication of rules between the regulators, streamline the remuneration regime for firms, and further strengthen the reputation and competitiveness of the UK banking sector.”
The FCA also plans to remove several remuneration rules from its Handbook where they overlap with the PRA Rulebook, enabling firms to rely on a single set of rules.
These proposals aim to ensure deferral periods remain sufficient to allow issues to surface while also encouraging firms to shift away from fixed pay toward performance-based bonuses.
Adjusting bonuses based on both successes and risk-management failures could foster a stronger link between financial rewards and the long-term outcomes of senior bankers’ decisions.
The consultation reflects efforts to align UK rules more closely with international practices, reducing complexity and ensuring regulations support both accountability and competitiveness.
