UK Removes Cap on Bankers' Bonuses in Post-Brexit Financial Rules Shake-Up

UK financial regulators anticipate improved competitiveness and sound business adaptations as the 2014 rule limiting banker bonuses to twice their annual salary ends on October 31. Critics warn of riskier banking practices and claim it's inopportune amid a national cost-of-living crisis, with the policy change still subject to ongoing consultations.

The UK is scrapping the cap on bankers' bonuses, introduced in 2014 while the UK was part of the EU. The cap limited bonuses at twice their base pay, aiming to curb excessive risk-taking in the financial services sector.
The move is expected to make London more competitive and attractive to do business. However, critics argue that the removal of the cap could lead to riskier banking practices and hurt households struggling with the cost of living.
The Prudential Regulation Authority and the Financial Conduct Authority state that the bonus cap led to an increase in bankers' fixed pay, which was problematic as these costs couldn't be adjusted in line with the firm’s financial performance during an economic downturn.
Despite the scrapping of the cap, some limits remain, including requirements for at least half of bonuses to be made in shares and 40% of payments to be deferred for at least four years, aiming to align remuneration with prudent risk-taking.
The measure to end the bonus cap was one of the few policies from former Chancellor Kwasi Kwarteng's brief term to be retained by his successor, Jeremy Hunt. The final decision to implement the policy change lies with the independent statutory regulator, the Prudential Regulation Authority.