(Bloomberg) -- Top banks are pushing the UK to soften its stance on deferred bonuses and clawbacks as regulators prepare to revise their post-financial crisis rulebook, according to people familiar with the discussions.
Discussions between firms and watchdogs are intensifying over the UK’s rules, which were introduced to curb “excessive-risk taking” about a decade ago and are among the strictest in the world. Senior managers are obliged to defer part of their pay for as long as seven years, and face clawbacks for a decade if issues are uncovered.
The topic has been a key focus for banks and their lobbyists since British regulators lifted a cap on bonuses last October, departing from European Union rules and clearing the way for awards above the previous limit of two times’ salary. Under the previous Conservative government, the regulators were given an extra duty to support the UK’s competitiveness.
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Talks have ramped up in recent months and the UK’s Prudential Regulation Authority and Financial Conduct Authority will soon publish new proposals in this area, according to several people familiar with the matter, who asked not to be named discussing private talks.
The PRA and FCA declined to comment.
Regulators have hinted at a broader post-Brexit revamp of the UK’s compensation rules, with PRA boss Sam Woods promising two years ago that his agency would evaluate how measures inherited from the EU “can be streamlined and made more effective and proportionate.”
Industry lobbying, led by membership group UK Finance and supported by some of Wall Street’s biggest names, has been focused on shortening the seven-year deferral for top managers and the five-year waiting period for other key risk takers, people with knowledge of the talks said.
The UK set its rules while part of the EU, though in some areas it went further than the minimum required across the bloc, which set a deferral period of at least five years for a substantial portion of the pay of the most senior managers.
One person said banks also want to shorten the UK’s clawback period, and raise the £500,000 ($654,630) bonus threshold that triggers some of the rules, in order to reflect inflation since the level was set in 2015.
UK Finance declined to comment, as did Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS Group AG and Morgan Stanley.
Outlier Country
The Financial Stability Board found in 2021 that just eight out of 24 countries imposed bonus deferral periods of longer than three years for banking employees, while six countries had either requirements or guidance around clawback.
In the US, which doesn’t require clawbacks and deferrals, four key federal regulators proposed rules on incentive compensation last summer that would ban firms with more than a $1 billion in assets from paying bonuses that encouraged “inappropriate risk.” The proposal would have to be endorsed by two other relevant US agencies in order to be adopted.
--With assistance from Katanga Johnson.
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