UK Regulators Propose Shortening Bankers’ Bonus Deferral Periods

The changes aim to enhance the competitiveness of Britain’s financial sector while raising concerns about potential risks to financial stability.

The Bank of England’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have proposed reducing bonus deferral periods for senior UK bankers from eight years to five years, and to four years for less senior bankers.
Under the new rules, bankers could receive part of their bonuses in the first year, rather than waiting three years, aligning UK practices more closely with those in the EU and US.
The proposals follow the UK’s 2023 decision to scrap the EU-inherited cap limiting bonuses to twice annual salaries, part of a broader effort to boost the competitiveness of the UK financial sector post-Brexit.
Regulators argue the changes will reduce bureaucracy, encourage responsible risk-taking, and allow banks more flexibility in determining which employees are subject to pay restrictions.
Critics warn that loosening bonus restrictions could revive risky pay practices reminiscent of those leading to the 2008 financial crisis, despite assurances from regulators that financial stability will not be compromised.