Bankers to Collect Bonuses Sooner Under New PRA Rule Change
The UK's Prudential Regulation Authority (PRA) has relaxed bonus rules for senior bankers, allowing them to receive partial payments as early as year one and full bonuses in four years, down from eight. This change aims to boost competitiveness by aligning with global financial centers like New York, but regulators insist it will not encourage reckless risk-taking.
According to the PRA, the new rule change comes into effect on Thursday, marking a significant shift in the way bonuses are structured for senior bankers. Under the previous rules, senior bankers had to wait up to eight years to collect their bonus in full, with partial payments allowed only from year three. The new rules will permit partial payments as early as year one and allow full bonuses to be collected in four years.
The move is a further step towards deregulation, following the scrapping of an EU-wide bonus cap that limited payouts to twice base salaries. Regulators argue that the change will bring the UK closer into line with other financial centers around the world, enhancing competitiveness and attracting top talent.
"This rule change reflects our commitment to maintaining a competitive and vibrant banking sector," said a PRA spokesperson. "By aligning with global best practices, we can ensure that the UK remains an attractive destination for top bankers."
However, critics argue that the move could embolden reckless risk-taking among senior bankers, who may be more inclined to take on excessive risks in pursuit of quick bonuses. According to Simon Jack, Business Editor at BBC News, "The relaxation of bonus rules is a worrying trend that could undermine efforts to prevent another financial crisis."
Regulators insist that the new rules will still discourage reckless risk taking and emphasize that banks must maintain robust systems for managing risk and ensuring that bonuses are tied to long-term performance. The PRA has also emphasized that banks must demonstrate their ability to manage risk effectively before being granted permission to implement the new bonus structure.
The change is expected to have a significant impact on the UK's banking sector, with many major banks already announcing plans to adopt the new rules. As one senior banker noted, "This change will allow us to reward our top performers more quickly and fairly, while also ensuring that we maintain a strong culture of risk management."
In conclusion, the PRA's rule change marks a significant shift in the way bonuses are structured for senior bankers in the UK. While regulators argue that the move will boost competitiveness and attract top talent, critics warn that it could embolden reckless risk-taking among senior bankers. As the banking sector continues to evolve, one thing is clear: the rules governing bonuses will remain under scrutiny in the coming months and years.
This story was compiled from reports by BBC Business and BBC Business.
