The UK’s cap on bankers’ bonuses was formally removed at the end of October.
Under measures inherited from the EU, UK banks were required to cap “material risk takers’” remuneration from 2021 onwards. The measures aimed to curb excessive risk-taking in financial services, and limited bonus payments to 100% of the receiver’s fixed salary, or 200% with shareholder approval.
Under joint rule changes unveiled by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), banks will be allowed to pay uncapped bonuses and other variable remuneration for 2023. The move, first announced last year by then chancellor Kwasi Kwarteng, applies to banks, building societies and PRA-designated investment firms.
The PRA and FCA said scrapping the cap would help to “remove unintended consequences”, particularly growth in fixed pay, which “reduces a firm’s ability to adjust variable remuneration to absorb losses or for material poor performance or misconduct”.
They added that the cap was “a factor in limiting labour mobility” and is “not routinely imposed in other leading international financial centres outside the EU”.