Banker Bonus Rules Relaxed to Boost London’s Global Competitiveness

The City of London is set for a major shake-up as UK regulators loosen bonus rules for bankers, aiming to fortify the Square Mile’s standing amongst the world’s top financial hubs. Under new reforms announced by the Bank of England’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), the time top financiers must wait to receive their full bonuses will be halved to four years from the previous eight.

This immediate change will apply to the upcoming bonus season and goes further than last year’s proposals, which had suggested a five-year deferral for the most senior staff. The reforms emerged after close consultation with the industry, and the regulators insist these streamlined rules will not encourage the reckless risk-taking that contributed to the global crisis of 2008. According to the authorities, a four-year deferral will remain sufficient for firms to identify any issues and reduce payouts where necessary. They highlight that quicker adjustments to bonuses are preferable since variable pay can be swiftly reduced if problems are detected or if company performance deteriorates.

The move follows the scrapping of the EU-inherited cap on bonuses, which limited variable awards to twice a banker’s base salary. Since this abolishment, major UK and global banks such as Barclays, Goldman Sachs, and JPMorgan’s UK arms have begun adjusting their compensation structures. With the government pressing for red tape reductions across the financial sector, the changes have been welcomed as vital steps toward retaining global talent and bolstering economic growth.

Significantly, only 60% of sums above £660,000 must now be deferred, rather than 60% of the entire award. Flexibility over upfront payments has also increased, allowing a larger proportion to be paid in cash, compared to previous rules requiring a 50/50 split between cash and shares. The modified policy allows part-payment of awards in the first year rather than making senior staff wait three years before accessing any payout.

Over 70% of the FCA’s remuneration rules have been cut as a result of the overhaul, leaving the PRA’s regulations as the primary reference for banking pay structures. The FCA’s deputy chief executive, Sarah Pritchard, emphasised that these reforms remove unnecessary complexity from regulatory requirements.

Industry reaction has been widely positive. UK Finance, the leading banking trade body, said the reforms bring essential flexibility to pay arrangements and should help the City of London attract and retain international talent. With the government encouraging a more “proportionate approach”, these changes are poised to underpin the UK’s competitiveness and secure its position on the world stage.