(Bloomberg) -- UK regulators plan to ease post-crisis bonus rules so bankers can get some of their cash immediately and are no longer forced to wait more than five years for full payouts.
The central bank will bring forward proposals for a five-year deferral period for senior managers, compared to eight-year delays in some cases currently, Sam Woods, chief executive officer of the BOE’s Prudential Regulation Authority, will say in a speech on Thursday.
For other bankers paid under the rules, the BOE will introduce a four-year deferral period, Woods will say, according to a draft of his speech at the annual Mansion House dinner. In addition, regulators are looking to abolish the three-year wait before any part of a bonus can be paid, allowing pro-rata vesting from the first year.
The concessions come after banks pushed regulators to soften the rules. The UK regime, introduced to curb “excessive-risk taking” about a decade ago following the financial crisis, is one of the strictest in the world.
“The UK has become something of an outlier in terms of the length of deferral that we require, and that this may well be damaging for competitiveness,” Woods will say. “And there is evidence that our deferral periods are longer than they need to be to create the right incentives for safety and soundness.”
Currently, the maximum deferral period on a bonus is seven years for higher-paid senior managers, plus a six-to-12 month retention period, which the BOE is proposing to abolish. This rule applies when total pay exceeds £500,000 ($649,630) or when a bonus exceeds 33% of total remuneration.
The proposal comes a year after British regulators lifted a cap on bonuses, breaking with European Union rules and clearing the way for awards above the previous limit of two times’ salary. An EU official said that no member states currently had rules mandating deferrals beyond the European standard of five years, meaning the UK had gold-plated its rules.
Globally, 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.
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