UK banks, investment firms to see fresh regulation on bonus payments

The Banks of England's (BoE) Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have unveiled new regulations on remuneration, which include changes to deferral and clawback of variable remuneration.

Senior UK bankers will have to wait up to seven years to receive their annual bonuses in full, and three years to receive any pay out.

Top bank executives will have a 10-year wait to be sure the bonus won’t be clawed back, while risk managers will wait five years to receive any performance awards in full, and traders and other “risk takers” will have at least a three-year wait.

In addition, the new rules establish that no variable pay including all discretionary payments should be paid to the management of a firm in receipt of taxpayer support.

The new regulation aims to further align risk and individual reward in the banking sector to discourage irresponsible risk-taking and short-termism

According to a joint statement issued by both bodies, the new regulation “aims to further align risk and individual reward in the banking sector to discourage irresponsible risk-taking and short-termism, and to encourage more effective risk management.“

Martin Wheatley, Financial Conduct Authority CEO, said that these rules were part of a wider package that would be announced through the summer “to embed an accountable culture in the City.”

"This is a crucial step to rebuild public trust in financial services, and allows firms and regulators to build long term decision making and effective risk management into people’s pay packets."

Andrew Bailey, Deputy Governor for Prudential Regulation, Bank of England and CEO of the Prudential Regulation Authority commented that effective financial regulation involved “creating appropriate incentives to encourage individuals to take greater responsibility for their actions.”

“Our intention is that people in positions of responsibility are rewarded for behaviour which fosters a culture of effective risk management and thus promotes the safety and soundness of individual institutions."

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